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's Call 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."
Turn it up
Users have access to 40 channels of streamed music, each with a particular theme. The free service has 40 channels and makes much of the CBC's vast music vault available to listeners on demand, and supplements the music with articles and videos.
Best known for its television channels that stream music into millions of homes as part of cable and satellite subscriptions, Galaxie also offers a standalone app that offers dozens of genre-specific channels for about $10 a month.
For $10 a month, subscribers have access to millions of songs. They can also download them songs to mobile devices for when they are not connected to the Internet.
Sirius XM Canada
The satellite radio service has more than 100 channels, most dedicated to specific genres of music. The service tops out at about $20 a month for its latest version, which allows users to download content and rewind and fast-forward through playlists.
Canadian users can listen to professionally programmed radio stations and use a "station creator" to hear music programmed to their own tastes. They can also skip six songs an hour. The service costs up to $10 a month, depending on the package.