Internet radio and online music services are growing faster than digital stations. But the copyright regime is holding back innovation. Could reform help? Ryan Sommer investigates.
Last year almost a third of Britons and Americans listened to the radio online. According to figures from Ofcom, the UK’s media regulator, 29 per cent of Britons and 27 per cent of US consumers listen online. But online radio attracts little of the attention of online music or movie downloads; it is largely a legal activity after all.
Yet the audience for online radio could already be larger than the audience for digital radio (DAB) in the UK, which now reaches just 19 per cent of the population, according to industry body RAJAR. In some countries, such as France and Germany, online radio is more popular than podcasts, or music downloads. And, compared to analogue radio – listened to by at least two-thirds of the adult population in most mature markets – digital radio is distinctly niche. The BBC’s 6 Music, threatened with closure last year, recently posted record audience figures. The record for the 10-year-old station: 1.5 million listeners.
This is not to single out 6 Music, or any other station: part of the point of DAB was to allow more stations to go on air than would ever be possible using the conventional, analogue airwaves. But despite the promise of greater listening choice, digital radio has yet to capture the public imagination in the way that digital TV has.
The need to buy a new radio is one reason: manufacturers have reported that sales of DAB sets have actually fallen back over the last two years (although RAJAR reports that the number of hours people listen to digital stations continues to grow).
And the situation is not much better in the US. The audience for Sirius XM, the satellite-based digital radio company in the US, is put at about 20 million, again much lower than the audience for older, analogue sets. The potential audience for broadcasting radio over the internet could be much, much bigger. Pretty much every consumer device that can connect to the internet can play audio. In the UK, for example, RAJAR says that 15 per cent of adults listen to radio via their mobile phones.
Nothing on but the radio
But internet radio faces an obstacle that, its supporters say, is holding back its natural development; an obstacle bigger than the need for DAB stations to persuade consumers to buy a new set. That obstacle is copyright.
At a recent meeting in London, hosted by the Coalition for A Digital Economy (COADEC), and Mixcloud, proponents of online broadcasting argued that only far-reaching reforms of the copyright system, and a simpler way for stations to license music in particular, will allow the medium to grow. What internet radio, and services such as Mixcloud, need is a digital copyright exchange (DCE).
The proposal for a DCE was first brought to the government’s attention in May of last year by Professor Ian Hargreaves, in a review of intellectual property and its role in the UK economy. It is just one of several initiatives that COADEC has advocated since the Digital Economy Act received royal assent in 2010.
And the DCE concept is of particular interest to UK start-ups working in the music sector, specifically those in streaming and internet radio. A DCE would make music licensing easier for all the parties involved. These days, even some of the old guard at licensing gatekeepers like EMI are beginning to agree that the answer to music piracy lies in creating a better service for fans and consumers. But although this is encouraging to internet radio entrepreneurs, with current conditions for music licensing, it is unlikely that the digital, web or app-based stations will rise up from the UK’s own start-up scene.
In the US, the internet radio sector had a head start thanks to SoundExchange, a not for profit organisation that collects and distributes performance fees to rights holders. Formed after the Digital Millennium Copyright Act (DMCA) in 1998, SoundExchange and companies like Pandora may have a sometimes rocky working relationship, but according to their counterparts We7 and MixCloud, it stills beat the UK’s system, managed by PPL. Compared with the US, here there are fewer caps placed on tariffs, no real allowances made for a united offering around streaming content, and a host of other problems.
As Clive Gardiner, senior vice president of digital at We7, says, “These are natural monopolies that don’t reflect the market value for streaming. An exchange (DCE) format could help solve this.”
A DCE is imperative, if British businesses are to be in at the start of the coming revolution in listening habits, in the UK and beyond. Anyone who has paid any attention to trade shows such as CES, NAMM, and more recently MIDEM will agree that handheld devices tethered to over-the-air data packages are the upcoming generation’s medium of choice.
These shows unveiled literally scores of docking devices that output digital audio or video from an iPad or a smartphone, to a home stereo or TV. Is the BBC iPlayer the new radio? Is Shazam your new disc jockey? Maybe not yet, but they are certainly the future, and as far as music discovery goes, the Spotify model needs few arguments for its staying power. It is simply a matter of the major record labels working out a realistic bottom line for revenue sharing.
When Neil Young recently took the stage at the All Things D Dive Media conference, the rock god caused little fuss when he stated flat out that “piracy is the new radio. That’s how music gets around.” If radio is dead to the man who gave us Crazy Horse, it is saying a lot.
A digital copyright exchange could both advance digital services, and cut down piracy. It need not be a serious investment: in this time of austerity, the Government, COADEC’s chairman Jeff Lynn suggests, could help bring together all the parties involved. Whether it is streaming for music discovery, or casual curation or talk programming, a DCE would bring immediate benefits.
As more and more people turn to Spotify premium accounts and internet radio – which work on the principle of random play instead of serving up the listener’s own choice of tracks – the benefits of curation and that rights are still managed for artists far outweigh the downsides for rights holders and licensees.
Atmospherics after dark
And as internet radio grows, the medium’s old guard seems to be in disarray. Marketing mismanagement means that DAB, the platform the industry bet on for digital in the 1990s, has not taken off with the public, whatever press releases from the industry might say.
DAB is licensed, and has high costs. But figures for “digital radio” in industry press releases refer to any platform that is not analogue. This includes the internet, smartphones, radio via a digital TV and yes… DAB. How much the radio industry has been relying on figures bolstered by the success of internet start-ups is difficult to say. But it is possible to predict a time in the near future when smartphones could lead to DAB’s complete demise, at least among the Millennial generation.
Streaming services for music fans, such as Spotify, seem to be succeeding in converting casual listeners into monthly subscribers. This model is heavily supported by the major labels, and comes down to negotiations between artists, rights holders and the service providers.
There is, however, a larger proportion of the population who are not all-consuming music nuts. These people are more likely to opt for free access to music and other programming on a simple, personal, and portable device. “These people want to be entertained with no effort, want something better (for them) than standard preset radio and will not pay for a music subscription,” says Clive Gardiner at We7. “By meeting these demands with smart advertising, We7 can make ad-funded music a sustainable business at scale.”
Indeed, the biggest opportunity to grow digital online radio is to win over mainstream radio listeners, and the small percentage who have bought into DAB. Statistics from the likes of Spotify and BBC iPlayer, which was responsible for transferring seven petabytes of data in the UK over broadband networks by the end of 2009, (radio programs were responsible for just over 30 per cent), prove that this broad adoption will come. And mobile and tablet devices’ growing popularity will only bring that day closer.
Meanwhile, elsewhere in the world, other internet radio services are thriving. Pandora’s 150 million sign-ups (40 million active users per month) is a big number that old guard media cannot ignore. The only thing stopping online players like this from reaching a market penetration closer to that of radio is winning over the in-car market, and that cannot be far off either. But in the UK there are further battles with rights holders ahead, battles that a DCE could help prevent.
Problems for online players include the fragmentation of rights, and lack of simple licensing terms for new technology. There is no mandatory licence in the UK on the lines of SoundExchange’s US streaming licence. And as there can be many different rights within one copyright work, online services will often find themselves waiting for licensing to catch up with what users already want.
An example is the development of new technologies for mobile caching. “Poor signals and limited data tariffs often provide a poor user experience for radio apps on mobile devices,” says Gardiner. “We7 has developed a technological solution which allows stations to be cached to give rock-solid performance, whether there is a signal or not, and this is out on beta for Apple and Android. We have been trying to license this for 18 months. PPL cannot [do this] because caching sits outside their mandate.”
Some labels prefer not to license caching for a free service, even if the contents of the cache are unknown to the user and all cached plays are recorded and paid for. This is just one example of where the current licensing environment is not supportive to innovation, insiders say. Technology has progressed beyond on-demand audio. But current UK licensing has yet to catch up.
For all their troubles, web services such as We7 and MixCloud are innovating and bringing in new users. But a spectacular example of the licence holders’ strength came late last year when a $77 million backed cloud and hardware-based music startup closed shop, before it even opened.
Beyond Oblivion was a streaming music service partly backed by Rupert Murdoch, which promised a service just as vast as Spotify or Pandora, and with the added comfort to gadget makers that its software could be pre-installed on a range of smartphones and PCs. The company also developed for Android and iOS, and right up until last autumn was telling press that it was in “very advance stage” negotiations with Universal, Warner Music, Sony, and EMI.
Then in December an update came that talks had stalled. Word on the street is that the labels asked for a larger upfront payment for their rights. With $30 odd million dollars spent, and nothing – at least not as far as we can see yet – coming out of the technology, the company is now defunct. This was a company, partly backed by News Corp, that was unable to reach amicable terms with the major record labels.
The inflexibility of PPL and the major licence holders in the UK has also kept US innovation out. In Pandora’s SEC filings for its IPO from early 2011, the company outlined risks and noted the trouble the service has had trying to expand to other countries. Well after the company abandoned plans to expand to the UK in 2008, paidContent covered CEO Joe Kennedy’s panel at NARM, a music law conference in San Francisco, where he was quoted stating:
“I wish I had a dollar for every time I said this quote: the good news is the internet is global, but the bad news is that copyright law is country by country… Pandora, to this day, is US only, because of either a flat-out inability to work licensing in other countries, or because the royalty asks are just not economic.”
The other main issue with the PPL system is that licensing costs are annual in the UK, but the organisation can withdraw large portions of rights secured at any time on behalf of record labels. Imagine trying to run a startup business – a miracle in many ways in London anyway – that is based around content that you cannot rely on being there, after you have paid for it.
And this all goes deeper than music too. As Jeff Lynn, of COADEC, points out, “This is fundamentally about licences. That could mean books, TV, music, or images. There may not be voices from the image side at this stage, but we are still in relatively early stages of bandwidth through ISPs.”
But Lynn is at least positive about the UK Government’s actions to date. “Hargreaves was a real watershed. It was recognition by government that IP and copyright isn’t fit for the digital age. David Cameron’s government realised that we can crack down on infringement, but we also have to get copyright that works first off,” he says. “Music is great. Art is great. But you are in a different league when you start talking about scientific breakthroughs.”
Allowing “data mining” could, through a more open and central digital repository for academic and medical journals, one day lead us to cures for things like Alzheimer’s and cancer, he suggests.
But an effective digital copyright exchange for music will at least be a small, first step in the right direction.