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If Pandora Can Write Lil Wayne A $3 Million Check, Why Should They Pay Less? [Commentary]

image from www.google.comPandora 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.

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