Wednesday, November 19, 2014

The Pandora Effect On Music Sales

Pandora effect image
A study by Pandora earlier this year has found that the more a song is streamed on the service, the more actual sales it will generate. If that's the case, it turns out that Pandora is a radio-like service in more ways than one, as radio plays have always lead to sales as well.

The study, which was outlined in a Billboard article, found that the average positive effect resulted in a 2.31% increase in music sales for new music, and 2.66% for catalog in something they called "track equivalent albums," which is a metric that counts 10 tracks as an album.

This ratio really changed between music released by major and indie labels. New music from the major labels played on Pandora resulted in a 2.82% positive effect, but only 0.62% for indies, who fared much better on catalog at 3.85% compared to the major's 2.36%.

The study also looked at how the number of streams affected sales as well. It found that if the streams were at least 25 times the sales, the positive effect was around 5%. When the streams to sales ratio was 150, the positive effect grew to 15% (I'd like to see the methodology for this, as the results seem dubious).

As a result of all this info, the researchers could put a value on each Pandora stream that was higher than the actual royalty paid. For instance, new music was valued at 0.265 cents while the actual royalty paid was 0.13%. Catalog music didn't fare nearly as well though, being valued at only 0.135 cents for only a 4 percent increase.

While the numbers look impressive, it's important to remember that the study was sponsored by Pandora in the first place, and these numbers will be used in the various upcoming lawsuits and hearings that the service is involved in. That said, there have been previous independent studies in the past that have found similar results, like this one from the NYPD Group.

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