Technology

Pandora Plays Defense in Debate Over Music Royalties


Pandora co-founder Tim Westergren

Photograph by Jonathan Sprague/Redux

Pandora co-founder Tim Westergren

Pandora (P) co-founder Tim Westergren fired the latest salvo in the streaming-music service’s ongoing dispute over royalties for musicians. His lengthy blog post on Pandora’s website seeks to argue that the company is far from the villain it’s made out to be by musicians and their allies. Here’s how Westergren makes his case:

Accuse your biggest opponent of lying. Pandora frames the dispute over royalties as a fight with the Recording Industry Association of America, with artists caught in the middle. And Westergren flat out accuses the trade group of deliberate deception:

“The first falsehood being disseminated is that Pandora is seeking to reduce artist royalties by 85%. That is a lie manufactured by the RIAA and promoted by their hired guns to mislead and agitate the artist community. We have never, nor would we ever advocate such a thing. I challenge the RIAA to identify a statement from Pandora that says we seek to reduce royalties by 85%. On the contrary, all of the key principals including Cary Sherman (the head of the RIAA) and Mike Huppe (the head of SoundExchange) know that we have been advocating for solutions that would grow total payments to artists.”

This is not to say that Pandora is not trying to lower royalty rates at all. Westergren wants total payments to artists to go up, but that doesn’t necessarily come from higher per-song royalty rates. In fact, the company has pushed to change the law so that Internet radio services would pay the same rates as cable and satellite music services, which are lower.

Pandora’s vision of higher-paid artists, to a certain extent, is out of its hands. Musicians will get paid more in royalties if streaming services get larger by adding more users. Digital services could also help artists create other revenue streams. To get to such a future, however, Westergren argues that the recording industry has to stop being so obstructionist: “There is a window of opportunity here to create a healthy and sustainable music ecosystem, but that won’t happen if the discussion is dominated and controlled by entrenched incumbents.”

Point out math errors made in the debate. Music royalties aren’t simple. A company like Pandora pays two different types of royalties, one to the copyright owner of the recordings and one to whoever holds the copyright to the underlying musical works. Different types of companies pay different rates, a disparity highlighted when Pandora bought a traditional radio station earlier this month.

A blog post this week by David Lowery, a musician claiming that Pandora paid him only $16.89 for 1 million streams of a song, has reinforced the idea that people making the music come out on the losing end. Pandora says the math is wrong. And while Westergren doesn’t discuss specifics of what his company pays, he endorses the calculations done by Michael Degusta, a blogger who showed that Pandora actually paid $1,370 for those 1 million streams. By Degusta’s number crunching, Lowery really made $234 (assuming Lowery’s description of what rights he owns is correct).

The whole discussion of per-spin royalties is misleading, according to Westergren:

“First we need to clarify what a ‘spin’ on Pandora means. Each spin on Pandora reaches a single person, compared to a ‘play’ on FM radio that reaches potentially millions of people. In other words, a million spins on Pandora might be equivalent to a single play on a large FM station. … If major market FM stations paid the same rates as Pandora, based on audience, some would be paying thousands of dollars for every song they played. How much do they pay performers right now? Zero. As Richard Conlon, SVP at BMI recently said: ‘One play on commercial radio is not the same thing as one play on Pandora.’ He is right.”

Insist that you are negotiating in good faith. Westergren says his company tried to negotiate in good faith with the American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music (BMI), two of the largest performing-rights organizations, and insists they tried to get more from Pandora than they were seeking from anyone else even though a deal was pretty much in place.

“Not only was our hand-shake agreement rejected by the ASCAP board, but shortly thereafter we were subjected to a steady stream of ‘withdrawals’ by major publishers from ASCAP and BMI seeking to negotiate separate and higher rates with Pandora, and only Pandora. This move caused us to seek the protection of the rate, also recently negotiated, enjoyed by the online radio streams of broadcast radio companies. It’s important to note that these streams represent 96% of the Internet radio listening hours among the top 20 services outside of Pandora (talk about an un-level playing field). We did not enter this period looking for a lower rate—we agreed to a higher rate. But in a sad irony, the actions of a few small, but powerful publishers seeking to gain advantage for themselves has caused all songwriters’ royalties to go down. Any characterization of Pandora as being out to cut publishing rates flies in the face of the facts.”

Pandora and the rights holders are reportedly headed back to the negotiating table soon.

Brustein is a writer for Businessweek.com in New York.

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