On-demand streaming royalties and ad-supported content

As has been widely reported, PRS for Music (the collective formerly known as the PRS/MCPS Alliance) has announced (via this press release) its new royalty rates for that rapidly-growing sector of the online music market; the on-demand streaming services.

The widely criticised minimum per-track royalty (previously 0.22p per track) is plummeting to 0.085p per track - or 85p per 1,000 tracks served, or what the advertising industry refers to as CPM (cost per thousand).

That still looks like a tough order when it comes to advertiser-supported content. For these sites, just to cover this new reduced royalty, an ad-supported site that plays an ad before every track has to sell that advertising at a CPM of 85p - if it only wants an advert one track in 10, then it needs to sell at a CPM of £8.50 - which is two to three times what a typical TV advertising campaign costs in the UK. And that is just to cover the PRS costs, let alone pay record labels, technology suppliers and make any money for itself.

The other moving part is the royalty rate - up from 8% to 10.5% of revenue - this is a neat move by PRS for Music - because the minima are still relatively high, it is likely that most business plans will focus on those numbers and not on the percentage rate, while PRS will have a headline royalty rate that, perhaps for the first time in a consumer market, will top 10% and which PRS will doubtless use as a reference point in other negotiations and Copyright Tribunal proceedings.

Finally a word on the process - the author (declaration of interest - he has represented interests adverse to PRS for Music on many occasions) notes that PRS asserts that an "extensive seven month consultation period" preceded the announcement, but that the concept that what customers think might be as important, or more important, than what a society's members think, still seems a challenge. It would be wonderful if some economists could invent some kind of bargaining process which would force collecting societies to negotiate as if in a real market situation.

Written by John Enser.