Pandora Sees iTunes Radio As A Threat

Be forewarned that this is a long post about a portion of the music business most fans aren’t aware of…

This morning I woke up and caught a little headline on a site I like to visit. One headline that I wouldn’t normally expect to see on that site is one about music, especially when it says “Pandora sees iTunes as a threat.” [article link]. At first read I chuckled. Mainly because a little over a month ago Pandora was stating that iTunes Radio was not a threat. Oh how a few weeks can change everything. Now that iOS 7 has come out and iTunes Radio has come in, Pandora obviously sees things a little different.

The Pandora Of The Past

First off, I want to write that I appreciate the original intent of Pandora’s concept. A curated musical discovery system that was utopian when it originated. Artists outside of the Major Label system desperately wanted to get in on the game. It meant new ears and a new world of awesome.

Then came the issue of submitting. An artist would submit music and wait. Pandora didn’t have a real good system for notification to the artist about anything – other than rejection. The rejection notice generally noted that the music fell outside the spectrum of their guidelines. Yet, if an artist wanted to go comparing music on the service they could find other music that was not recorded as well, or that was poorly written, but somehow found it’s way onto Pandora. They’re their gatekeepers, so it’s their rules.

Sometimes music that got rejected, quietly made it onto the service. But an artist wouldn’t know because Pandora doesn’t inform them.

Artists that got on were happy to be on the service and all was good.

The Pandora Of The Now

Somewhere down the line Pandora started changing in terms of it’s business culture. Let’s call it the corporate greed culture.

In the past couple of years the executives at Pandora have been making strange moves to the outside world. Ones that include asking for the very artists they’re supposed to be supporting, to take up to an 85% discount in pay, otherwise known as a pay cut. But wait… let’s back up a bit.

To be fair, when digital streaming services started it was new territory and copyright law hadn’t quite caught up to the rapid change in the music landscape. Especially when plays vs listenership could now be accounted for. This was unprecedented compared to traditional radio. So a proposed royalty rate was enacted by Congress and because it was to be retroactive – they gave digital streaming broadcasters like Pandora a discount so that it wouldn’t cripple their new businesses.

Take a moment to let that last paragraph sink in. Maybe re-read it in order to read the words “gave” & “discount” again. Yes, companies and broadcasters were initially given a discount that is supposed to end and then go up to a set per stream rate – by law.

Pandora’s Royalty Debacle

While other services are quietly seeing how things play out, Pandora is boldly going on the offensive. They’re suing ASCAP – one of the Performing Rights Organizations (PRO for short, of which there are 4 in America). Pandora has also gone to lobby Congress for a reduction on the discounted royalty rate they are already paying. Asking for as much as 85% off the current discount they already enjoy.

Let’s say you go into your job and the boss says: “Hey, I need you to continue doing your job, but now I want you to be happy with me paying you 85% less. Because I can’t afford to pay you as too many people want my service and I don’t want to raise my price.”

How would you react?

If you’re fine with that scenario, then you’re likely to say artists are overreacting.

What a lot of people miss is that to create the music and solidify it into a tangible form costs money. Sometimes, gobs of it. So getting a recoupment of say $0.0017 of a cent as the majority of what you’re paid when someone listens to the song, you can hopefully see that it’s going to take a huge number of listens before you make even $1. As a hint – it will take 589 full listens to make that buck. Take’s a lot more listens just to buy a Starbucks coffee. Oh, but I didn’t tell you this $0.0017 has to get split up. A portion of that goes to the owner of the master recording. A portion of that also goes to the writer or writers, and also to the publisher or publishers. That’s right, even less money makes it to the writer(s) & publisher(s). ** (see below)

Meaning – it takes even more spins to get to that $1 per person(s) involved.

There is another royalty that is roughly about 1/7th of that $0.0017 that goes to the mechanicals. It’s so minute that it isn’t worth talking about. Other than the writer/publisher has to register with yet another agency to collect on those tiny portions and it takes thousands of streams to realize anything there.

I almost forgot, there is another royalty that is fairly new to those of us in the U.S.. A performers royalty that all digital services have to pay and it’s administered by the 4th PRO in America, Sound Exchange. This is a royalty that nearly every other country in the world collects for it’s artists. Up until a few years ago, the U.S. was like 1 out of 7 countries that didn’t collect anything for the performer. As of this post, it’s still only on digital services (streaming radio, Sirius, etc). Traditional broadcasters are still exempt at this time.

Pandora going before Congress for lobbying on a discount kinda woke a few congress peeps up to the fact that there is a disparity between digital and traditional broadcast. Leaving them thinking that traditional broadcasters now need to start paying that performers royalty too. Not exactly the result that Pandora wanted, nor the traditional broadcasters. Though it is something every performer in the world would love to see!

Going Forward

I don’t have a huge vested interest in Pandora. I don’t own their stock. I do have a friend who works for them. Having written that – I don’t appreciate a CEO (now former) who cashes out millions of dollars a month on his stock while inflating the value of his company, concurrently pandering to artists saying they want to pay more, while lobbying congress and suing a PRO to get a reduction – It’s insulting.

When a CFO says: “We’ve put offers on the table where we commit to paying no less than we pay now in absolute dollars, and with increases on an annual basis. That hasn’t gone anywhere because of a lack of trust.”

Well hell Mr. Herring (CFO of Pandora), you’re damn right we artists & PROs don’t trust you. Think about your statement again. You’re not stupid. I’m not stupid. We’re not stupid.

You’re saying you don’t want to pay more in absolute dollars, while at the same time you want to get more people using your service. That equals a business model that says, get more streams, pay less money per stream. You’re still paying out the same absolute dollars but getting more product out to the end user for the same price – at the expense of the persons whose creations you NEED to make your product.

This is why I like companies such as Apple. They don’t complain, make their deals, operate within the law and are willing to pay better than Pandora. [cough, cough]iTunes Radio[cough][cough]. I’ll take a company that isn’t asking for a discount and using all of my product, over a company that is looking to cash out using the shirt-off-my-back any day of the week.

In Conclusion

I’d like to see Pandora succeed. However, I don’t want to see them succeed when it kills my ROI (return on investment) on my own career, or for any musician. It’s not worth it. I’d rather see another company willing to fight and pay artists, writers, and publishers the non-discounted royalty rate by law at a minimum. I also want Pandora to be more transparent, actually that should apply to any digital music business. When Pandora stops attempting to game the system it’ll be a win/win/win situation for consumers, artists, and Pandora. Until then, be aware we artists, publishers, and PROs are watching Pandora like hawk due to the shenanigans they’ve pulled.

Mr. Herring states “It has created a situation where meaningful conversations for positive outcomes are going to be hard-fought wins. It’s going to take a long time to get there.“

Remember, that Trust and outcome you want Mr. Herring is hard to earn, easily taken away, and harder to re-earn. Stop wondering why there is a lack of trust. Your company lost it’s trust with all the antics it’s tried.

** As a side note, if there is more than 1 writer, a portion of that royalty gets divided by all the writers. Another portion of that royalty goes to the publisher, if there is more than one, they also split the publisher’s share.

I actually own my own publishing, writing shares and master recordings. I’d like to reference the fact that Pandora has yet to pay me the master recording royalty for any streams. I do get the performers royalty via Sound Exchange. Pandora is also the only streaming service that has not requested a compulsory license to stream the few tunes they do have of mine. To be fair about that, it might have been part of the submission process.