The CBC argues that it is within their mandate to offer on-line services to Canadians. The on-line music industry claims that the CBC, by offering the service for free, draws subscribers away from the services that require a subscription. Who is right?
Let's consider broadcast radio. Broadcast radio is free - one only has to own a radio to receive the content. Commercial broadcasters funded their operations through advertising. The CBC funded its operations through government support. The playing field was level.
That is not the case with the on-line music industry. The on-line service providers rely on subscription fees from users to fund their operations, not advertising. The CBC still relies on government funding to fund their operations, and hence have an unfair advantage. The playing field is not level.
The CBC should be allowed to offer on-line services, but it should be required to follow the same business model as the on-line service providers; i.e. subscribers should pay for the service. To do otherwise risks the destruction of the on-line music industry.
But then, the CBC has quite a lot of experience in destruction, doesn't it?
This article appeared in the October 12, 2012 edition of The Globe and Mail:
I've reproduced the content of the article below, for posterity.
CBC Music losing millions as content costs surpass revenue
Last updated
The Canadian Broadcasting Corp. will lose millions of dollars a year on its free music service for the foreseeable future, as the high cost of content surpasses the advertising revenue the service earns.
CBC Music was launched in February just as the broadcaster was bracing for deep budget cuts that would lead to the loss of 650 jobs and prompt the CBC to request permission to sell advertising on its Radio 2 service.
Private companies who charge for digital music services have complained about the CBC’s encroachment, arguing the public broadcaster uses taxpayer money to run a service that will put them out of business.
The stakes are high: Canadians spend about $500-million a year on music and digital sales account for about 34 per cent of the market. Dozens of competing services such as Rdio and Galaxie are trying to woo consumers to their sites, hoping to take a bigger piece of that spending away from traditional retailers.
Chris Boyce, executive director of radio and audio for CBC English services, said the broadcaster is providing a unique service to Canadians. That means plenty of Canadian content, including interviews and live concerts in addition to the actual 40 channels of music.
“We have a very different business model than a for-profit company focused on the shareholder bottom line,” Mr. Boyce said. “Revenue is important to us, in that it allows us to reinvest in Canadian content and deliver on our mandate as a public broadcaster.”
The service has been hugely successful from a listener perspective, with 7.8 million visits on the web since launching. Users have streamed 17.6 million hours of music – the equivalent of listening to Carly Rae Jepsen’sCall Me Maybe on repeat 880,000 times.
But despite its popularity, the broadcaster only expects to sell about $750,000 in advertisements this year to help offset more than $6-million in costs (some of those are one-time costs associated with launching the service).
While it expects costs to go down marginally, much of the money it spends is to pay musicians and producers royalties and to produce programming. Other companies operating in the space estimate it costs about $6 a customer to run an online service, once copyright fees, infrastructure and marketing costs are considered.
“We do expect that expenses will continue to be larger than costs for some time, largely because of the cost of creating all the rich content on the site,” Mr. Boyce said. “Though we expect ad revenue to continue to grow and the gap to close.”
Monetizing music is a problem affecting much of the online music industry. Pandora, one of the largest services in the world, lost $5.4-million in its last quarter even as more subscribers joined. Sirius Canada Inc., which charges users a monthly fee, has never posted a quarterly profit despite having more than 2 million Canadian users.
Eric Boyko, whose Montreal-based Stingray Digital is one of the largest music companies in the world with more than 75 million subscribers for its Galaxie music service, has been one of the CBC’s most vocal critics. It’s not the service he has a problem with, it’s the broadcaster’s refusal to charge for a service that he thinks has value.
“If music is given away for free then people will say that it’s free,” Mr. Boyko said in a recent interview. “It will upset the market. That remains a threat, and that is why I’m mad at the CBC – someone is always paying.”
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