PPCA needs to find a new business model

Opinion from Peter Saxon. Open and fair-minded person that I am, I was prepared to carefully consider the PPCA’s written response to regional radio’s shutdown of internet streaming over the weekend. But it lost me from the very first sentence: The Phonographic Performance Company of Australian (PPCA) regrets that Commercial Radio Australia (CRA) has chosen to deprive regional listeners of local programming…

Like they care.

What they really care about is maximising revenue for the artists and labels they represent – which is as it should be. I have no problem with that. So why come the raw prawn by feigning concern for the good people of regional Australia? Obviously some genius on the PPCA media release committee thought that insulting the radio industry by accusing them of meanness towards their own listeners would bring some sort of positive outcome to negotiations.

I can’t speak for anyone else, but all it did for me was make me doubt the sincerity of other statements in their release such as: PPCA has never been interested in pursuing anything other than a fair and commercial outcome. ‘Fair’ in whose opinion? If it was really fair, for both sides, they’d have a deal already.

And on to the final sentence, to labour the point once more: Sadly, CRA seems prepared to penalise regional radio listeners while demanding an outcome that is not supported in legal or political processes in Australia or around the world. This statement can be interpreted to cut both ways – that’s why there’s a dispute.

For the record, the radio industry cares deeply about their listeners. As a business, the owners and shareholders care because without listeners they’d have no business. As for local staff, they are passionate about communicating with their listeners – which means immersing themselves in the local community. They know they won’t succeed in this business without that attitude.

When CRA members made the tough decision to cut direct streaming of their programs last Friday, they were well aware of the damage it could do to their stations’ relationship with those of their listeners who listen online. They didn’t choose “to deprive regional listeners of local programming…” They simply could not afford to be held hostage to the unsustainable demands made by the PPCA.

For an objective assessment of the salient arguments from both the PPCA and CRA, read Steve Ahern’s in-depth article here

In my opinion, though, this release from the PPCA is symptomatic of the record industry’s attitude to doing business ever since the mass production of cassette tapes began in the 1960’s. Not that I don’t have some sympathy (and a smidge of empathy) for their position. After all, more than any other product on the planet, music is susceptible to theft.

By the 1990’s digital distribution by upstarts such as Napster made it even easier for consumers to bypass the cash register at the local record store (remember them). This only served to drive the record industry further towards a siege mentality.

What they failed to grasp was that the vast majority of consumers would rather pay for their music than rip it off, if it were available through an elegant and reliable interface. Rather than create a download mechanism of their own, the record companies directed their energies towards litigation. A business model they seem to rely upon to this day.

It took a third party with real vision in Apple to invent iTunes to give the music industry a viable business model that would work for them in the internet age. Ironically, Apple wasn’t out to sell music, but iPods.

Australia was one of the last countries in the developed world to adopt iTunes because while Apple had settled on a 99 cent per track sale price with record companies in the US, our local industry was holding out for much more. After an interminably long period of negotiation it finally launched in Australia at $1.69 per track.

In my opinion, I’m sorry to say, the music industry has failed to innovate and find new ways to market its own product. Instead they are fixated on extracting crippling royalties from others who come up with fresh ideas and do the R & D to bring those ideas to life.

Take Pandora, the most successful of the ‘cloud based music servers’ (I refuse to call it radio). It’ll turnover an estimated $700 million this year but will struggle to make a profit because they have to pay 50% to the record companies. Not that I’m much interested in Pandora’s profitability but rather the fact that out of that 50% that goes to the record companies the artists themselves get a pittance.

So poorly are they paid, it prompted the members of legendary rock band Pink Floyd to write an open letter, published in USA Today last year railing against the fact that Pandora was looking to Congress to force the music industry to charge less which means artists would get even less.

In an opinion piece I wrote on the matter in June last year I pointed out that one huge difference between Radio and the likes of Pandora is that Radio still sells music, as it always has, simply by playing and promoting it. Pandora doesn’t. It allows you to cherry-pick your own songs from a library of millions to create your own playlists. It means you can have thousands of albums at your fingertips for the price of just one or two – or even free if you’re happy to put up with some ads. So why would you buy another song ever again?

Herein, perhaps, lies a solution. Instant downloads.

The idea was mooted several years ago before the technology existed. It pretty much exists now. You hear a song on the radio. You like it. You touch an app on your smartphone, tablet, computer or maybe a button on your DAB+ radio and the song is instantly downloaded into your nominated music library. Instant gratification for all parties.

Rather than fight over a royalty rate for non-existent incremental income from internet streaming, the PPCA could engage with CRA to negotiate a split of actual revenue generated from instant downloads driven by radio air play. I’ll bring the Iced VoVos.


Peter Saxon

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