Things move so quickly today that staying on top of things has you about two steps behind. My favorite saying is being on time makes you 15 minutes late. The same can be said for being in the music and radio business today.
There are those leading the way. Scott Borchetta and Bob Pittman sat down together somewhere about a year ago and changed the relationship between records and radio. Both have continued to forge relationships to benefit their respective companies today and into the future. Scott found a new revenue source that came without anyone feeling that they were being pressured to hand over money under duress. Mr. Pittman, with the biggest gun in the fight, guaranteed he would have ammunition at a controlled cost going forward.
Now CBS is rolling out its guns and CEO Dan Mason has deftly tied his Top 40 radio stations into his imitative to the record industries. Naming the project Amplify ties nicely into the Amp CBS Top 40 stations. CBS has also brought to the table some new things in long form programming for both the businesses’ superstars with a promise to help emerging acts.
A lot of this is being done to put a lid on future streaming costs for the terrestrial companies. Understandable when you look at the costs being paid by Pandora, Spotify and iHeart for streaming. If you know the expenditure for streaming, you have ask yourself if the costs make it possible to believe the concept can ever financially work. But Apple is getting in the game.
The labels cut a questionable deal with Apple for iTunes and now they want to get it all back with iRadio. iTunes redesigned the music purchasing world. It replaced a business that was probably at a tipping point of failure anyhow but it certainly killed the CD concept and Apple keeps much of the money. Apple is mulling iRadio which is not really radio as we know it more like iHeart and Pandora. Apple would like to duplicate the financial advantage they have with iTunes. They proposed paying half of Pandora’s cost and less than a third of what iHeart and Spotify pays today.
Apple comes into the game as the biggest player in the world. Yeah all of the other services play on their equipment but they control the landscape and can tie everything they do into iRadio. Apple has also already proven they can move the needle. I mean whose stock would you rather own? Apple? Pandora?
Is it worth a 50-70 percent discount? Only the record companies are going to be able to determine that. They have a profitable partner in Apple, unlike the other streaming services. And this is before Apple has trained their sights on Pandora and iHeart. If you were going to bet on one, maybe two, in the next 10 years where does your money go? Pandora generated less than $400M in ad revenue last year. They say they have eight percent of US listening. Terrestrial radio did $15B. Radio sales works on a power ratio formula. If you have an 8 share in the market you should be taking eight percent of the revenue of the market for a power ratio of 1.
What should eight percent of the listening in the US mean to Pandora? Eight percent is $1.92B. Where is that going to come from? Terrestrial radio continues to grow, albeit slowly, every year.
Are there enough sales people to generate this kind of money? I estimate there are 30,000 radio sales people for Terrestrial radio. Sales people, particularly ones selling air and brands, are not under every rock. Even Apple doesn’t have enough blue shirts to go around. They do have revenue from millions of iPhones every quarter, fees from all of the cell phone companies, every non-free apple app and the majority of music downloads.
I wouldn’t want to be Pandora or Spotify staring down that barrel.
(The views expressed in this article are those of the author and do not necessarily reflect those of MusicRow.)
