1. Corporate Finance/Restructuring Forensic and Litigation Consulting Economic Consulting Strategic Communications Technology Sound recordings used as specially featured entertainment in nightclubs and pubs Choice modelling study

2. 1 Contents Introduction Overview and approach Focus groups and Survey design Survey implementation Estimation results Duration issues Adjustments for late arrivals and early departures

3. Introduction PPL engaged LECG to perform a choice modelling study on the use of PPLs sound recordings as specially featured entertainment (SFE) in nightclubs and pubs. This presentation provides a summary of our choice modelling study and explains how the results can be used to price PPLs specially featured entertainment licence (the SFE Licence). In our survey we estimated the maximum price that a licensee is willing to pay for the use of sound recordings as SFE through the estimation of end customers willingness to pay. The estimation of willingness to pay requires survey data and involves the application of stated preference methods (i.e. choice modelling). 2

4. Contents 3 Introduction Overview and approach Focus groups and Survey design Survey implementation Estimation results Duration issues Adjustments for late arrivals and early departures

5. Overview of methods At times it is necessary to determine the value of non-market goods or the incremental value of a particular feature of a good or service that is not individually paid for. Valuation methods for such items can be categorised into one of two groups: Revealed preference methods, which rely on data showing individuals actual behaviour. Stated preference methods, which rely on data derived from individuals describing how they would act in given, hypothetical, circumstances. Revealed preference methods are not applicable in many situations, in particular, the relevant data is often not available. Stated preference methods were developed in response to these and other challenges. There are three main stated preference methods: Contingent valuation, in which survey respondents are asked to express their willingness to pay for a hypothetical good or service. Conjoint analysis, in which respondents are asked to evaluate a series of alternatives, usually one at a time, using numerical rating scales (sometimes several alternatives are shown and respondents are asked to rank them). Choice modelling, in which respondents are presented with a series of hypothetical situations (including prices), and asked to select their preferred choice. 4

6. Choice of method The choice modelling method was used because it has a number of advantages over other stated- preference methods, which make it a more reliable method. These are: By replicating the type of choices that individuals make in real life, i.e. choosing between alternative options By offering a choice between alternatives, it avoids the bias associated with asking directly for monetary valuations Each respondent provides multiple responses so the results are not dependent on their reaction to one question Choice modelling methods have been extensively used to study consumer choice behaviour in many different areas, including transportation, energy, housing, and marketing. Choice modelling was used in Australia to estimate the appropriate level and structure of equitable remuneration payable under the Copyright Acts statutory licensing scheme for the use of sound recordings by dance venues (nightclubs, dances and dance parties). 5

7. Choice modelling overview 6 Choice modelling involves two key steps: Collection of information on consumers preferences which simulates the choice process between venues with different attributes. Econometric methods used to estimate willingness to pay based on this data. In our study we collected information on consumers preferences using a survey where respondents choose between hypothetical options such as those set out in this example. EXAMPLE CARDS We analysed the data to estimate willingness to pay using econometric methods. (Econometrics involves the application of statistical techniques to economic data to test and examine the relationship between different variables.)

8. Phases of our approach 7 Our choice modelling study involved the following steps: Focus groups: interviews with groups of nightclub and pub attendees to understand the key attributes of nightclubs and pubs holding SFE events. Survey design: design of the survey questionnaire including the choice exercise. Survey implementation: completion of the survey by the respondents. Estimation of results: estimation of the respondents willingness to pay based on the survey data. Estimation of results Survey implementation Survey design Focus groups

9. Contents 8 Introduction Overview and approach Focus groups and Survey design Survey implementation Estimation results Duration issues Adjustments for late arrivals and early departures

10. Focus groups BDRC, a market research firm, conducted a series of focus groups to inform the design of the survey. Six focus groups were undertaken, as follows: London nightclub goers, 18-35, in employment. London SFE pub goers, 18-35. Guildford, nightclub goers, 18-35, in employment. Guildford SFE pub goers, 18-35. Manchester, nightclub goers, students. Manchester, SFE pub goers, 35-55. In particular, the results from the focus groups provided information on the key attributes of nightclubs and pubs holding SFE events and the range of levels for each of the key attributes. We designed two choice exercises based on this information: one for nightclubs and one for pubs holding SFE events. 9

11. Nightclubs choice exercise Respondents were presented with 10 different choice exercises. Each choice exercise contained 3 venues and respondents were asked to choose the most preferred option in a typical night-out situation (respondents also have the option none of these). Each venue was characterised by the following features and levels: 10 FEATURES & LEVELS MUSIC TYPEMusic you don't mindMusic you like NUMBER OF HOURS UNTILL CLOSING 1 hour3 hours PRESENCE OF DJYESNO COVER CHARGE£1£1£5£10 5 hours DRINK PRICESCheapAverageExpensive £15£20£30 EXAMPLE CARDS

12. Pubs choice exercise Respondents were presented with 10 different choice exercises. Each choice exercise contains 3 venues and respondents were asked to choose the most preferred option in a typical night-out situation (respondents also had the option none of these). We defined 3 different exercises depending on the type of drink that respondents have at these venues. Each venue was characterised by the following features and levels: 11 ATTRIBUTES & LEVELS PRESENCE OF DJNO DJDJ NUMBER OF HOURS TILL CLOSING 1 hour3 hours DANCING FACILITIES Dancing facilities NO dancing facilities PINT BEER /CIDER PRICE £0.5£1£2 5 hours £3£5£7 SPIRIT MIXER PRICE/ WINE £1£1£3£5 £7£10£15 SOFT DRINK PRICE £0.5£1£2 £2.5£3£5 EXAMPLE CARDS

13. Contents 12 Introduction Overview and approach Focus groups and Survey design Survey implementation Estimation results Duration issues Adjustments for late arrivals and early departures

14. Survey implementation BDRC undertook the online survey in January 2009 and in April 2011. In this document we present the results from the 2011 study (the results from the 2009 study are set out in Appendix 1). The final sample consisted of 1,049 interviews. The final sample of Nightclub attendants included 539 respondents. A nightclub attendant was defined as someone aged between 18 and 65 that had attended a nightclub at least once in the previous 3 months. The final sample of Pub with an SFE event attendants included 510 respondents. A Pub with an SFE event attendant was defined as someone aged between 18 and 65 that had attended a Pub with an SFE event at least once in the previous 3 months. In the survey, representativeness of the UK population of Nightclub and Pub with an SFE event attendants was ensured. The characteristics of this sample of the UK population were identified through an Omnibus survey conducted in March 2011. The survey consisted of two elements: i.Initial questionnaire on respondents socio-demographic characteristics and their previous experience in nightclubs and pubs with an SFE event, and ii.Choice modelling exercises. 13

15. Robustness of the survey results Surveys must be carefully constructed to ensure that there is no inherent bias contained within the questions, leading to incorrect results. Our survey has been tested for reliability in two main ways: reviewing results to test for any responses where there is a low response rate. if there are options which are rarely selected by respondents this may suggest that they did not fully understand the questions or that the answers were not constructed correctly. testing the sensitivity of the monetary variable, either for entrance to a nightclub or per drink in a pub / bar. we expect to see respondents willing to pay differing amounts in entrance fees / drink prices, however as the price increases we expect the number of respondents willing to pay the price to decrease, following a standard shaped demand curve. On the following slides we discuss the results of these tests (the tests of robustness for the 2009 study set out in Appendix 1 show similar results). 14

16. 15 Reasonableness of responses: Nightclubs As part of our survey we asked nightclub respondents to choose their preferred venue in various scenarios, the results we received are shown in the graphs below: These graphs show a range of responses to our questions, with all responses being chosen to some degree. This demonstrates that respondents understood the questions and that the survey answers were realistic. 17 51 17 46

17. Reasonableness of responses: Pubs/Bars The results from our pub / bar respondents show a similar pattern: 16 10 39 51

18. Sensitivity of the monetary variable 17 The sensitivity of the monetary variable can also be examined: in general, it is expected that the willingness to pay for a given service or commodity will drop as the price increases, e.g. more people will be willing to pay an entrance fee of £1 than £10. both the graphs below show the expected downward sloping demand curve. this demonstrates that respondents understood the choices in the survey and placed considerable weight on the price paid, either to enter a venue or per drink, favouring lower prices. this is strong evidence that respondents understood the scenarios they were offered and that these scenarios matched with expectations that were understood by the respondents. Note: Respondents are offered four options in each hypothetical question in the survey: three of the options are venues with certain attributes and prices; and one option is none of these. This outside option is necessary to ensure that the WTP results are not biased. If this option was not available respondents would be forced to choose a venue that they may not choose in real life. Nightclub preferred entrance feePub / bar preferred price per drink for beer / cider

19. Contents 18 Introduction Overview and approach Focus groups and Survey design Survey implementation Estimation results Duration issues Adjustments for late arrivals and early departures

20. Nightclubs: Willingness to pay (1/3) 19 The willingness to pay (WTP) is interpreted as the increase in the entrance fee where the consumer is indifferent given that one additional attribute is supplied by the venue (that is, the consumer is willing to accept the increase in the entrance fee if the additional attribute is supplied). Music you like Music you like & DJ Presence of DJ WTP for Music you like is the incremental amount individuals would be willing to pay for entering a nightclub with Music they like in addition to the price they would be willing to pay for the same nightclub with Music they dont mind (none of them have a DJ) WTP for DJ is the incremental amount individuals would be willing to pay for entering a nightclub having a DJ in addition to the price they would be willing to pay for the same nightclub with No DJ (none of them have the music they like) WTP for Music you like & DJ is the incremental amount individuals would be willing to pay for entering a nightclub that plays Music they like and has a DJ in addition to the price they would be willing to pay for the same nightclub without any of these characteristics. In all cases the WTP refers to the entrance fee per event

21. Nightclubs: Willingness to pay (2/3) 20 EXAMPLE: Willingness to pay for the music type Χ Music type Music you don't mind Music you like Number of hours until closing …… Presence of DJ NO Cover charge £5£5£2 Drink prices…… Venue 1 Venue 2 = = The figure to the left sets out an example of the type of choice a respondent would be faced with. This respondent would be willing to pay £3 for entering a nightclub having the Music they like (Venue 1) in addition to the price he would pay for entering the same nightclub but with the Music he doesnt mind (Venue 2). Using results of several exercises and individuals we are able to estimate the average willingness to pay for the attributes included in the cards.

22. Nightclubs: Willingness to pay (3/3) Applying econometric methods to the results from the survey we are able to estimate the distribution of the willingness to pay for each feature. The table below shows the median willingness to pay for all the features of the nightclub: 21 ComparatorFeature Willingness To Pay (/event) Music you don't mind & No DJMusic you like£3.27 Music you like & DJ£6.82 The results for willingness to pay per event for nightclubs in the 2009 study were similar, but slightly higher (as set out in Appendix 1). The results for willingness to pay are inclusive of VAT, which was at a rate of 20% at the time of the survey. Therefore, the figures should be divided by 1.2 to express them exclusive of VAT. Note that the feature Presence of DJ is not a relevant benchmark for the value of the SFE licence on its own because the feature Music you like is intended to represent SFE in this choice exercise.

23. Nightclubs: Willingness to pay per hour Willingness to pay per hour can be calculated using the willingness to pay per event and the average duration of attendance at the nightclub 1. The results are set out below: The results for willingness to pay per hour for nightclubs in the 2009 study were similar (as set out in Appendix 1). 1 Note that the average number of hours at the nightclub is a result from the survey. 22 ComparatorFeatureWTP (per event)WTP (per hour) Music you don't mind & No DJMusic you like£3.27£0.96 Music you like & DJ£6.82£2.01 Average number of hours at the nightclub3.40

24. 23 Pubs: Willingness to pay (1/3) The willingness to pay (WTP) is interpreted as the increase in the price of the drink where the consumer is indifferent given that one additional attribute is supplied by the venue (that is, the consumer is willing to accept the increase in the price of a drink if the additional attribute is supplied). Dancing facilities Presence of DJ WTP for Dancing facilities is the incremental amount individuals would be willing to pay for a drink in a Pub with an SFE event having Dancing facilities in addition to the price they would be willing to pay for the same drink in a Pub without Dancing facilities (none of them have a DJ) WTP for DJ is the incremental amount individuals would be willing to pay for a drink in a Pub with an SFE event having a DJ in addition to the price they would be willing to pay for the same drink in a Pub with No DJ (none of them have dancing facilities) In all cases the WTP refers to the price of one drink

25. Pubs: Willingness to pay (2/3) 24 EXAMPLE: Willingness to pay for dancing facilities Dancing facilities No Dancing facilities Dancing facilities Number of hours until closing …… Presence of DJ NO Beer price (pint) £2£1 Venue 1 Venue 2 = Χ This respondent would be willing to pay an additional £1 per drink in a pub/bar with Dancing facilities (Venue 1) above the price he would pay for the same drink in the same Pub/Bar but without Dancing facilities (Venue 2). Using results of several exercises and individuals we are able to estimate the average willingness to pay for the attributes included in the cards.

26. Pubs: Willingness to pay (3/3) 25 ComparatorFeature Average WTP Pub/Bar (per drink) Average WTP Pub/Bar (per drink) Beer / Cider Spirits / Wine Soft Drinks No dancing facilities & No DJDancing facilities£0.74£2.00£0.51£1.16 Presence DJ£0.44£1.33£0.20£0.73 Dancing facilities & DJ£1.21£3.14£1.06£1.87 Number of respondents 1 27818052 By applying econometric methods to the results from the survey we estimated the distribution of the willingness to pay for each feature. The table below shows the median willingness to pay for all the features of the pub with an SFE event (the overall figure is a weighted average of the responses to the choice exercise for each drink type): The results for willingness to pay are inclusive of VAT, which was at a rate of 20% at the time of the survey. Therefore, the figures should be divided by 1.2 to express them exclusive of VAT. 1 Note that the number of respondents is used to weight the WTP for each drink type to calculate the average WTP per drink.

27. Pubs: Willingness to pay per hour Willingness to pay per hour for pubs can be computed by calculating: the willingness to pay per hour for each drink by multiplying the WTP per drink by the average number of drinks per hour; and then calculating the weighted average across the three drink types based on the proportion of respondents for each drink type. 26 ComparatorFeature Average WTP Pub/Bar (per drink) Average WTP Pub/Bar (per hour) Beer / Cider Spirits / Wine Soft Drinks No dancing facilities & No DJ Dancing facilities£0.74£2.00£0.51£1.16£1.59 Presence DJ£0.44£1.33£0.20£0.73£1.01 Dancing facilities & DJ £1.21£3.14£1.06£1.87£2.55 Number of respondents27818052 Number of drinks4.9 3.8 Number of hours3.63.53.8 Number of drinks / hour1.361.401.00 The average results for willingness to pay per drink for pubs in the 2009 study were similar, but about 15% higher (as set out in Appendix 1).

28. Review of willingness to pay results 27 Any of the attributes of music, the DJ and dancing facilities are sufficient to trigger the need for an SFE Licence – this means that there is a range of relevant estimates for the willingness to pay. The range in the nightclub survey is £0.96 to £2.01 per hour and the range in the pub survey is £1.01 to £2.55 per hour – anywhere in these ranges would be an appropriate starting point for considering the value of an SFE Licence. It is notable that the range for pubs is higher than the range for nightclubs – this may be considered counterintuitive. However, there are two factors that may explain this result: the counterfactual in the nightclub survey includes the use of music and therefore the survey may underestimate the true value. since the pubs survey is based on the product of the willingness to pay per drink and the average number of drinks consumed it may be a less robust estimating method. Deciding on the appropriate benchmark to use from the results is a matter of judgement – a range of £1 to £2 per hour is a reasonable range within the overall range of results given the above two issues.

29. Contents Introduction Overview and approach Focus groups and Survey design Survey implementation Estimation results Duration issues Adjustments for late arrivals and early departures 28

30. Our approach to duration issues To test whether there is a relationship between individuals willingness to pay for an SFE event and its duration we have examined the interaction between the various attributes characterising the SFE event and the number of hours until closing (questions to address this issue specifically were only included in the second survey). For example, we interacted the presence of a DJ in a nightclub and the number of hours until closing. In this case the estimated WTP for the presence of a DJ would indicate the quantity per hour until closing that respondents are willing to pay for having a DJ in addition to the quantity they would pay for the same nightclub but with no DJ. As part of this analysis we also tested whether the relationship is linear or non-linear. 29

31. Linear and Non-linear interactions For each choice exercise, we estimated two specifications: Linear interaction: In this specification we interacted the features measuring the SFE event with the number of hours until closing. This specification allowed us to test whether the WTP for the SFE event increases with the number of hours until closing. EXAMPLE. Music you like in the Nightclub choice exercise Non-linear interaction: In this specification we interacted the features measuring the SFE event with the log of the number of hours until closing. This specification allowed us to test whether the WTP for the SFE event increases more or less than proportionally with the number of hours until closing. 30 Music you like WTP for this new variable is the incremental amount individuals are willing to pay per hour to enter a nightclub with Music they like in addition to the amount they would pay per hour for the same nightclub with the Music they dont mind (none of them have a DJ) Number of hours until closing X

32. Results: Overview Our analysis of the interaction between the attributes that characterise an SFE event with the number of hours until closing provided the following results: For nightclubs, the WTP for the music you like and/or the presence of a DJ increases with the number of hours until closing. For pubs, the WTP for dancing facilities and/or presence of a DJ increases with the number of hours until closing. For both nightclubs and pubs, the non-linear specification is preferred over the linear specification. The WTP figures for pubs are higher than the figures for nightclubs (except for durations of less than one hour). 31

33. Results: Nightclub WTP and duration 32 Median WTP (£/event/individual) Time to closing (hours)Music you like Music you like & DJ 1 £1.64£3.40 2 £2.60£5.39 3 £3.28£6.80 4 £3.80£7.89 5 £4.23£8.78 6 £4.60£9.54 7 £4.91£10.20 8 £5.19£10.77

34. Results: Pubs WTP and duration 33 Median WTP (£/event/individual) 2 Time to closing (hours) 1 Dancing facilities Presence DJ Dancing facilities & DJ 1 £0.76£0.98£1.20 2 £2.41£3.10£3.80 3 £4.56£5.87£7.19 4 £7.06£9.09£11.13 5 £9.13£11.77£14.41 6 £9.92£12.78£15.65 7 £10.60£13.66£16.73 8 £11.20£14.43£17.67 1Note that these figures are not strictly Time to closing since the number of drinks per hour figures are for Time at the pub. 2We have assumed that the number of drinks per duration of the event is the lower of: (i) the average number of drinks per hour times the number of hours at the Pub; and (ii) the total number of drinks per night.

35. Contents Introduction Overview and approach Focus groups and Survey design Survey implementation Estimation results Duration issues Adjustments for late arrivals and early departures 34

36. Adjustments for late arrivals and early departures PPL s provisional view is that it should structure the SFE licence based on the duration of events rather than by the average period of attendance of customers. This gives rise to the question of whether the WTP estimates need to be adjusted to account for differences between average customer attendance and event duration. There are two ways in which customer attendance can be different from event duration: 1.Customers arriving at the event after it has started. 2.Customers leaving the event before it has finished. Our analysis of WTP and duration does not need to be adjusted for customers leaving the event before it has finished because our estimates are based on the number of hours until closing. This means that the WTP estimates reflect the willingness to pay for the availability of hours of SFE independent of whether individuals actually stay until the event has finished. The WTP and duration figures (set out on slides 33 and 34) do not account for customers arriving at the event after it has started. An adjustment is therefore required to reflect this factor (questions to address this issue specifically were only included in the second survey). 35

37. Adjustments: Customers arriving after the start time There are two primary pieces of evidence that can be used to determine the level of adjustment that is appropriate. data from the survey on respondents average arrival times at venues relative to the time the SFE event have started. a comparison of reported event lengths from PPL licensees and the average attendance periods reported by respondents to the survey. 36

38. Adjustments for late arrivals and early departures: Data on arrival times (1/4) We asked respondents to indicate when they arrive at the venue relative to the time the SFE event starts. The data is set out below: 37 % of respondents arriving during each hour after the SFE starts HourNightclubPub 1 st hour62.3%73.2% 2 nd hour27.4%16.6% 3 rd hour7.3%6.3% 4 th hour2.4%3.2% 5 th hour0.6%0.8%

39. Adjustments for late arrivals and early departures: Data on arrival times (2/4) The weights are calculated by dividing the proportion for the timeframe by the sum of the proportions for the event length. For example, the proportion of arrivals to the Pub in the second hour of a two hour event, 18.5%, is calculated as 16.6% divided by the sum of 73.2% and 16.6%. 38 The data from the previous slide can be used to estimate weightings to account for the proportion of people who have arrived after the start of the event as follows: Event length (hours) Proportion of arrivals from start (hours)12345 1 100.0%81.5%76.2%73.8%73.2% 2 18.5%17.2%16.7%16.6% 3 6.6%6.4%6.3% 4 3.2% 5 0.8% NIGHTCLUB Event length (hours) Proportion of arrivals from start (hours)12345 1 100.0%69.4%64.2%62.7%62.3% 2 30.6%28.3%27.6%27.4% 3 7.5%7.3% 4 2.4% 5 0.6% PUB

40. Adjustments for late arrivals and early departures: Data on arrival times (3/4) The data suggests that an adjustment of up to 11% may be appropriate. The weights calculated on the previous slide are based on an assumption that the proportions from the survey for the overall period are reasonable approximations when used to calculate proportions for shorter periods. 39 Applying the weights calculated on the previous slide to the WTP per duration for nightclubs set out on slide 33 leads to the following results (the results shown are for Music you like & DJ; if the analysis was performed using Music you like only then it would result in the same percentage differences): Median WTP (£/event/individual) Difference (%) Music you like & DJ Event length (hours)Unadjusted Adjusted for arrival times 1 £3.40 0% 2 £5.39£4.78-11% 3 £6.80£6.14-10% 4 £7.89£7.30-8% 5 £8.78£8.28-6%

41. Adjustments for late arrivals and early departures: Data on arrival times (4/4) The data suggests that an adjustment of up to 14% may be appropriate. The weights calculated on the previous slide are based on an assumption that the proportions from the survey for the overall period are reasonable approximations when used to calculate proportions for shorter periods. 40 Applying the weights calculated on the previous slide to the WTP per duration for Pubs set out on slide 34 leads to the following results (the results shown are for Dancing facilities & DJ; if the analysis was performed using Dancing facilities only then it would result in the same percentage differences): Median WTP (£/event/individual) Difference (%) Dancing facilities & DJ Event length (hours)Unadjusted Adjusted for arrival times 1 £1.20 0% 2 £3.80£3.32-13% 3 £7.19£6.21-14% 4 £11.13£9.69-13% 5 £14.41£12.97-10%

42. Adjustments: Reported event lengths We compared the data on reported event lengths from PPL licensees to the average attendance period of respondents from the survey. The average reported event lengths from PPL licensees (based on data for 2010) are: 4.51 hours for nightclubs; and 3.95 hours for pubs. The average attendance periods of respondents from the survey are: 3.67 hours for nightclubs; and 3.62 hours for pubs. The data of average attendance periods of respondents from the survey are relatively close to the figures on reported event lengths. The difference between average attendance periods and reported event lengths is much less than suggested by the arrival times data. This data suggested that a lower adjustment (compared to the analysis on slides 37 to 40) may be appropriate. 41

43. Appendix 1 Results from the 2009 study

44. Survey implementation BDRC undertook the online survey in January 2009. The final sample consisted of 1,038 interviews. The final sample of Nightclub attendants included 516 respondents. A nightclub attendant was defined as someone aged between 18 and 65 that had attended a nightclub at least once in the previous 3 months. The final sample of Pub with an SFE event attendants included 522 respondents. A Pub with an SFE event attendant was defined as someone aged between 18 and 65 that had attended a Pub with an SFE event at least once in the previous 3 months. In the survey, representativeness of the UK population of Nightclub and Pub with an SFE event attendants was ensured. The characteristics of this sample of the UK population were identified through an Omnibus survey conducted in October 2008. The survey consisted of two elements: i.Initial questionnaire on respondents socio-demographic characteristics and their previous experience in nightclubs and pubs with an SFE event, and ii.Choice modelling exercises. 43

45. 44 Reasonableness of responses: Nightclubs As part of our survey we asked nightclub respondents to choose their preferred venue in various scenarios, the results we received are shown in the graphs below: These graphs show a range of responses to our questions, with all responses being chosen to some degree. This demonstrates that respondents understood the questions and that the survey answers were realistic. 18 51 17 46

46. Reasonableness of responses: Pubs/Bars The results from our pub / bar respondents show a similar pattern: 45 12 39 51

47. Sensitivity of the monetary variable 46 The sensitivity of the monetary variable can also be examined: in general, it is expected that the willingness to pay for a given service or commodity will drop as the price increases, e.g. more people will be willing to pay an entrance fee of £1 than £10. both the graphs below show the expected downward sloping demand curve. this demonstrates that respondents understood the choices in the survey and placed considerable weight on the price paid, either to enter a venue or per drink, favouring lower prices. this is strong evidence that respondents understood the scenarios they were offered and that these scenarios matched with expectations that were understood by the respondents. Note: Respondents are offered four options in each hypothetical question in the survey: three of the options are venues with certain attributes and prices; and one option is none of these. This outside option is necessary to ensure that the WTP results are not biased. If this option was not available respondents would be forced to choose a venue that they may not choose in real life.

48. Nightclubs: Willingness to pay Applying econometric methods to the results from the survey we are able to estimate the distribution of the willingness to pay for each feature. The table below shows the median willingness to pay for all the features of the nightclub: 47 ComparatorFeature Willingness To Pay (/event) Music you don't mind & No DJMusic you like£3.70 Music you like & DJ£6.93 Note that the feature Presence of DJ is not a relevant benchmark for the value of the SFE licence on its own because the feature Music you like is intended to represent SFE in this choice exercise. The results for willingness to pay are inclusive of VAT, which was at a rate of 15% at the time of the survey. Therefore, the figures should be divided by 1.15 to express them exclusive of VAT.

49. Nightclubs: Willingness to pay per hour Willingness to pay per hour can be calculated using the willingness to pay per event and the average duration of attendance at the nightclub. The results are set out below: 48 ComparatorFeatureWTP (per event)WTP (per hour) Music you don't mind & No DJMusic you like£3.70£1.01 Music you like & DJ£6.93£1.89 Average number of hours at the nightclub3.67

50. The results for willingness to pay are inclusive of VAT, which was at a rate of 15% at the time of the survey. Therefore, the figures should be divided by 1.15 to express them exclusive of VAT. Pubs: Willingness to pay By applying econometric methods to the results from the survey we estimated the distribution of the willingness to pay for each feature. The table below shows the median willingness to pay for all the features of the pub with an SFE event (the overall figure is a weighted average of the responses to the choice exercise for each drink type): 49 ComparatorFeature Average WTP Pub/Bar (per drink) Average WTP Pub/Bar (per drink) Beer / Cider Spirits / Wine Soft Drinks No dancing facilities & No DJDancing facilities£0.90£2.59£1.06£1.52 Presence DJ£0.66£1.19£0.40£0.84 Dancing facilities & DJ£1.57£4.40£1.90£2.61 Number of respondents 1 30218931 1 Note that the number of respondents is used to weight the WTP for each drink type to calculate the average WTP per drink.

51. Pubs: Willingness to pay per hour Willingness to pay per hour for pubs can be computed by calculating: the willingness to pay per hour for each drink by multiplying the WTP per drink by the average number of drinks per hour; and then calculating the weighted average across the three drink types based on the proportion of respondents for each drink type. 50 ComparatorFeature Average WTP Pub/Bar (per drink) Average WTP Pub/Bar (per hour) Beer / Cider Spirits / Wine Soft Drinks No dancing facilities & No DJ Dancing facilities£0.90£2.59£1.06£1.52£1.82 Presence DJ£0.66£1.19£0.40£0.84£1.01 Dancing facilities & DJ£1.57£4.40£1.90£2.61£3.13 Number of respondents30218931 Number of drinks4.74.23.3 Number of hours3.73.63.1 Number of drinks / hour1.31.21.1