SoundExchange Reveals What Pandora Pays Artists
By Eliot Van Buskirk of Evolver.fm.
http://www.hypebot.com/hypebot/2012/10/ ... tists.html

Earlier this month, Pandora revealed artist payouts in the millions, as part of its ongoing campaign to reduce the royalty rate for online radio — or at least add a similar burden to FM radio, which pays no performance royalty.

To be clear, Pandora phrased this carefully in its blog post on the topic, saying that it paid out all this money “for” artists, rather than “to” them. Just the same, we figured we’d check in with SoundExchange, which gathers these royalties and then disburses them to the proper copyright owners, for a reminder about how they disburse that money — and how much really goes to the artists in question.

“The owner of the sound recording [usually a label] receives 50 percent, and 5 percent is shared with the session musicians and backup singers also on the recording,” SoundExchange senior communications manager Sophia Majlessi told Evolver.fm. “That leaves 45 percent for the featured artists.”

So when Pandora says it is paying over $10,000 for the music of the late, great Oscar Peterson, it’s really paying over $4,500 to his estate, assuming all of Peterson’s music went through a record label, as is almost certainly the case. We just thought we’d make that clear, given that we may have contributed to the impression that Pandora and other online radio services were paying all that money directly to artists.

Say what you will about Pandora’s compensation to artists and labels — some point to the fact that it doesn’t have many high-profile competitors as a sign that the royalty rates for online radio are too high, while others blast the company for not paying out enough, even as it forks over the majority of its revenue to copyright holders. One thing is beyond dispute: Online radio, under these government-set rates, is different from nearly any other kind of digital business.

Usually, when you build something out of ones and zeros, your costs rise at a much lower rate than the revenues from people using it. If I put a song on iTunes, for example, and one person buys it, I lose money. If I sell a few more copies, I break even at some point. If 10,000 people buy it, I make a lot more, without incurring any more cost. And if I sell 100,000 copies, all of that extra revenue is pure profit. This is the way of most digital businesses, from magazines to movie rentals.

For online radio services like Pandora, however, royalty costs rise directly alongside usage because they have to pay an additional flat rate for each song streamed to each listener — a rate that increases each year. This is why Pandora currently pays half of its revenue to SoundExchange, even at its industry-leading scale

One response to this would be, “Fine, so the payouts increase alongside usage — who cares? Pandora can just sell more ads to increase its revenue alongside those other factors, and make money, even if its profits won’t scale the way those from a traditional digital business do.”

Good point — except for one thing: There are finite ad dollars companies are willing to (or able to) commit to online radio, especially when so many other businesses are ad-supported. So even if Pandora expands past its already impressive ratio of about 1 in every 10 Americans using the service, its royalty costs will continue to rise proportionally as ad dollars are harder to come by.

In light of that, it’s easy to see why Pandora along with many other online radio and consumer electronics companies is asking Congress to do something about that rate.

Not exactly a shocker to me that the RIAA is holding back technology with draconian licensing fees and policies.

And it'll likely end up biting the MF's too like usual!

Pandora's box: The cost of 'free' music
Aidin Vaziri
Thursday, November 29, 2012
http://www.sfgate.com/music/article/Pan ... 079243.php



How much should "free" music cost and who should pay for it?

That's the deceptively simple question at the heart of the latest round of legal wrangling surrounding the Oakland-based online radio service Pandora, which has launched an effort to get federal legislation passed to lower royalty rates paid to musicians so that it may remain competitive.

In response, more than 100 artists, including high-profile acts like Rihanna, Pink Floyd and Katy Perry, have signed an open letter opposing the move. "Pandora's principal asset is the music," the letter states. "Why is the company asking Congress once again to step in and gut the royalties that thousands of musicians rely upon? That's not fair and that's not how partners work together."

Pandora argues that Internet radio royalty fees should be in line with those of other services, such as cable and satellite radio. According to the company, it paid 54 percent of its revenue to record companies and artists last year. By comparison, Sirius satellite radio paid 8 percent. Pandora, however, agreed in 2007 with the artists' and labels' representative organization to its royalty rate.

Remember Napster
If all of this sounds somewhat familiar, it's because the dispute echoes similar controversies that have arisen ever since Napster first knocked the record industry off its axis a decade ago by introducing the concept of free, unregulated downloading of music over the Internet.

The major labels were ultimately able to drive Napster out of business on the basis of copyright infringement but the genie was out of the bottle. Fans came to expect convenient and low-cost access to music around the clock.

The dominance of the Internet as an information delivery platform means that the issue of what should be free and who should pay for it has, if anything, become even more complicated - so much so that virtually any solution is bound to short-change at least one part of the music industry itself.

Last month, Pandora, a publicly traded company, filed a lawsuit against the American Society of Composers, Authors and Publishers to lower its 4 percent obligation for publishing royalties to the 1.7 percent paid by broadcast radio.

"The whole concept that Pandora is out to screw artists is just not true," said Brian Zisk, founder and executive producer of the SF MusicTech Summit conference series. "What Pandora is trying to do is survive. If terrestrial radio was paying ... terrestrial would end up paying $4 billion for the same usage."

Raising revenue
At issue is that while satellite and terrestrial radio have effectively monetized their services by passing on costs to listeners - either through subscription fees or sizable advertising blocks - Pandora largely remains free.

"If the government makes it possible for Pandora to run with just a minute of advertising an hour, is anyone going to listen to traditional radio anymore?" said Robert Levine, former executive editor of Billboard and author of the book "Free Ride," which explores the impact new media has had on the business of content creators.

According to Pandora's fourth-quarter financial report, 90 percent of its revenue comes from pop-up and audio advertising, which in the online world not only tends to drive away users (in many cases, to music pirating outlets) but have yet to prove effective, especially as more users shift to mobile devices.

"Mobile advertising is not taking off for many reasons so, like Facebook, Pandora is struggling to make any sizable revenue from mobile ads," said Dave Allen, founding member and bass player for the bands Gang of Four and Shriekback, who blogs frequently about developments on the digital music front.

Slow to change
It's a confusing debate for Pandora's 175 million users and even the members of Congress who are being asked to weigh in. The music industry, which is notoriously slow to adapt to change, has been in free-fall for more than a decade as new business models keep emerging without clear guidelines in place for compensation for creative works, with artists suffering the most in the process.

"It's a tough situation," Zisk said. "There's this fight over the perceived remaining scraps and not a focus on how to build the pie."

Casey Rae, deputy director of the artists' advocacy group Future of Music Coalition, said that while he would like to see Pandora survive, the bill getting batted around in Washington at the moment isn't the solution.

"It doesn't take into account enough factors," he said. "There's no economic backbone to it. There haven't been any impact studies. We need more data. We need to take the broader market to decide this is good."

Levine agreed. "People in the music industry always disagree on how to make money," he said. "This is one of the few things in which there's almost no disagreement. It's a pretty big deal."

The music makers
The people who actually make the music, meanwhile, can't do much more than voice their concerns while music labels, politicians and venture capital-backed startups battle it out over the money - of which there's less and less these days.

"Musicians are grossly devalued at the moment," said Jordan Kurland, producer of the Noise Pop music festival in San Francisco and manager for artists Death Cab for Cutie and Bob Mould. "It's just a reality and hopefully it goes back around."

On Wednesday, the House Judiciary Committee's Subcommittee on Intellectual Property, Competition and the Internet held the first in a series of hearings on music licensing.

There the debate shifted yet again: Rather than considering the idea of reducing Internet radio's royalty obligations, many representatives questioned why broadcast radio wasn't paying any royalties at all.

In the long run, though, the biggest impact may be on music fans.

The artists, who have been sidelined by the legal battles while their income levels steadily fall, may lose patience with the business altogether, leaving everyone with less music to fight over.

"If musicians are never going to share equally in revenue streams from these companies, why would they continue to make music?" Allen asked.

That has ALWAYS been the case. "The Man" has been a big rip off since day one. I'm not saying it's right (it isn't), but it's NOTHING NEW. Back in the mid-late 70's I was a college dj & interviewed a number of recording artists. The #1 topic they brought up? How most artists felt horribly ripped off by both the record companies & their management companies.

It's more than a bit ridiculous that Pandora pays so much more than terrestrial radio stations.

I'm just not sure that what Pandora offers is analogous to radio, either satellite or terrestrial, thus entitling them to pay the same lower royalty rate. Radio offers listeners only three options: an on/off switch, a volume knob, and (maybe) competing stations. If people are attracted to what Pandora offers as being an improvement on what radio offers--if users enjoy a greater ability to decide what they can and cannot hear on Pandora--that by itself should justify Pandora having to pay a higher royalty rate.

I would GUESS the sound quality is significantly below that of radio, though I don't know Pandoras's bit rate for certain. Analog (old style) radio is probably 3/4 of cd quality. Is Pandora even top notch mp3 quality (300+ kbs)?

I doubt the revenue stream for terrestrial radio has the potential that Pandora has though. I don't know that many people that listen to radio that actually care about what they're listening to, and even 20 years ago when my father ran a place that bought advertising, the radio stations were hurting for buyers.

Watching The Larry Kudlow show tonight with John Popper of the Blue's Traveller's and the discussion was about Pandora's payout of $0.08 per 1000 plays and Popper's acknowledges he's OK with that. He says musician's make most of their money on tour so things like Pandora are simply exposure vehicles.

Not sure I agree with that, the payout that is. $0.08 is definitely on the cheap for a profit bearing corporations.

Consent degrees for licensing were conceived in 1941 and obviously before any of the media platforms distributions of today. Therefore musician's such as Burt Bacharach has called for that this ruling to be revised.

He also stated in response to Burt Bacharach comments that he was in time where he got "lucky" that a songwriter can have other people do his songs. Bacharach "lucky", sorry John, Bacharach (and Hal David) were one of the best songwriters in the past century in my book.

I get Poppers assertion though, in that musicians should earn their income from touring and not to count on royalties BUT unfair profiteering also requires a fairness in sharing as well.

Rick A.

Pandora's business model doesn't allow folks to just click and hear a particular song. It's more like targeted radio where you could listen for hours and a particular track might only play once if at all. Popper is correct that Pandora is an exposure vehicle in the same way radio is an exposure vehicle. If you're lucky, you get to hear the song you want while at the same time hearing a lot of other similar songs. Conversely, go to youtube and you get that song anytime you want if someone has bothered uploading it. I have no problems with the way Pandora works or the amount it pays in royalties and wouldn't want any changes that would force it out of business, as it is not exactly raking in the cash as it is.

Back in September, Representative Mel Watt of North Carolina created a bill called the "Free Market Royalty Act", which would eliminate the compulsory license created by Congress back in 1995, while extending the performance right in sound recordings to include terrestrial radio. I'm not much of a legislative expert, but the bill is said to have only a 1% change of becoming enacted https://www.govtrack.us/congress/bills/ ... 9#overview I'm not sure whether getting rid of the statutory license (which essentially means that Pandora does not need to (a) get permission from a copyright holder to broadcast his or her music and (b) negotiate a royalty agreement with that copyright holder) is a good idea or a bad idea, but I am sort of surprised that the "free and open internet" bloggers didn't jump all over it.

Radio is the best advertising these RIAA IDIOTS have ever had.

I'm sure I've typed this elsewhere on these board as part of my never-ending duties as a industry shill F.U.D., but the RIAA has actually gone on record as opposing any measures to bring pre-1972 phonorecords under federal copyright protection--mostly because it creates a situation where they can engage in jurisdiction shopping.

I don't use it anymore, but without Pandora I would never have discovered a lot of old Blues music which I have bought. I'd never have found all the newer bands I listen to and enjoy without YouTube and Pandora either. What is the first thing the RIAA does, every time? Go after YouTube and Pandora for "lost sales". I got news for 'ya, RIAA: no one solely listening to either of those and not buying was going to be buying anyway. Killing themselves with every takedown.

The lawsuit is over licensing, not "lost sales".

This one. I was being more broad. That said, it doesn't change the fact that they don't get it at all, and never will.