If Pandora Can Write Lil Wayne A $3 Million Check, Why Should They Pay Less? [Commentary]
Pandora founder Tim Westergren says they'll pay 2000 artists over $10,000 dollars each over the next 12 months with 800 making $50,000 or more. Top earners like Coldplay, Adele, Wiz Khalifa, Jason Aldean are getting $1 million check; and Drake and Lil Wayne's earning are "fast approaching" $3 million a year each. The disclosures come at a time when Pandora is lobbying hard to reduce streaming rates.
ANALYSIS & COMMENTARY:
Telling the world that you're paying many artists fat stacks may seem an unusual strategy when advocating for lower royalty rates, but Pandora is a very uprofitable company. Much of the reason for the loss, according to both Westergren and most outside analysts is that by federal statue, they pay about 50% of all revenue as royalties. That's a rate much larger than over-the-air broadcasters pay.
Those that want to vilify Pandora, often wrongly place it on the same category as non-demand music streamers Spotify. A much more accurate comparison is to an FM radio with an infinite dial. You can't hear a particular song when you're craving it, but you can probably find a station that fits your overall taste and mood.
There is also real evidence that Pandora drives legal download sales. According the NPD Music Acquisition Monitor study: "Overall music purchasing was down in the last year, while the average Pandora listener purchased 29% more music during the second quarter of 2012 compared with last year. Additionally, Pandora listeners' music acquisition came increasingly from legal purchases, while non-listeners showed a decline.
Consumer's have spoken. Pandora now accounts for just 6.5% of radio listening in the U.S. The music industry has two choices:
1) take Pandora's money until the well runs dry
2) work with them to help them grow.
Actually, the best comparison is to a Music Subscription Service, such as MUZAK or the music channels on your local cable/satellite TV providers. And what do they have that Pandora doesn’t? A subscription fee.
Comparing Pandora to an FM radio with an infinite dial falls apart pretty quickly. Radio stations employ Program Directors and the majority have on-air personalities, which Pandora doesn’t. A different enough business model to make that analogy fall flat.
But beyond that, Pandora, who was a champion of Musicians when they started, is now taking a page from the RIAA’s book and is trying to get a grassroots movement going over legislation that is inequitable to a former bedfellow.
I’m speaking of the Performance Rights Act that was HR 848 a few years back. RIAA backed it and got musicians to back it as well. It was definitely at the expense of Terrestrial Radio. And they reason the RIAA backed it? 50% of the payout went to the owner of the master recording, which in the majority of cases was the record label. The major labels basically said “Hey terrestrial radio, it was fun while it lasted, but it’s over now. Here’s your hat, what’s your hurry?”.
And that’s what Pandora is trying to do. Get the general populace to back legislation that saves their skin by taking a pound of flesh from the people who got them there, the musicians.
I get that it’s an inequity that Pandora pays 50% in revenues to royalty payouts while SiriusXM pays 10%. But to get the government to correct that inequity by legislating another inequity for musicians really doesn’t work.
You may be right, comparing Spotify to Pandora isn’t fair. Then again, maybe Spotify just has a better business model and maybe there’s an even better one out there yet that will treat everyone as they should be treated, or at least fairly.
(In case the HR 848 reference confuses anyone, Here is a page with my podcasts on the subject http://withavoicelikethis.com/?s=hr+848 )
And I do realize that Pandora works on a Freemium basis, you can always upgrade to Pandora One. I’m simply not aware of any major Cable/Satellite TV provider that works on a Freemium model.
Jim – Respectfully, join us in the 21st century. The internet is the new delivery channel for video and audio just as TV and radio once were.
Bruce – Respect had nothing to do with your reply.
You chose the FM radio analogy. I simply pointed out its shortcomings.
This analysis isnt consistent with the facts
(a) impartial analysts (ex rich greenfield) have said Pandora’s failure to monetize, not artist royalties are the problem
(b) the revenues paid by Pandora are set by a standard Pandora agreed to 5 years ago, lobbied for Congress to pass and, in fact, praised. What’s changed? Pandora is doing better than 5 years ago.
(c) Pandora said it “mistweeted” on this today (see billboard), overstating what artists are paid, so buyer beware. Which should be the standard with all of Pandora’s claims about this bill.
The bottom line is this is about padding Pandora’s bottom line, not its survival, at the expense of artists getting a fair market, “willing buyer, willing seller” day’s pay.
Pandora plays less than 1 minute of advertising per hour.
Terrestrial radio plays about 13 minutes per hour. If you play less ads, your revenue is less. If you play less ads, you play more music so your costs are going to be higher. This explains why Pandora pays such a high percentage of its revenue in royalties. Maybe Pandora should play more ads.
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They should pay less because that is the entire point of being in business: making money. This is accomplished via reducing expenses and maximizing revenue.