Jeff Price: Pandora Is Trying To Get Uncle Sam To Lower Artists Wages

Jeff-priceBy former TuneCore CEO Jeff Price (@TuneCoreJeff) who blogs at ArtistCore.

For the streaming digital radio service Pandora, music is a commodity used to make money through advertising. In June 2012, it went public on the New York Stock Exchange, making its investors, founders and shareholders a lot of money. Despite the success of the IPO, Pandora execs have a problem: they need their company to become more profitable. Assuming they don’t change their business model of selling ads around other people’s music, they have two real choices:

First, Pandora could ask advertisers to pay it more money. Unfortunately, it has not been able to convince them to do this. After all, why should a company pay more for something if it doesn’t think it’s worth it?

This leaves option number two: pay less money to music creators and copyright holders to use their music. Understandably, music creators and copyright holders do not want to be paid less.

Pandora also has the option of writing and recording its own music thereby not having to pay anyone for its use. It has chosen not to.

If Pandora can’t get more money from advertisers, won’t create and record its own songs and can’t pay less to use music it does not own, it has a bit of a problem. One solution could be to try to convince music creators and copyright holders why they should be paid less to be part of their service, and then create a VOLUNTARY way for them to opt in. I suspect with a compelling reason, 99% of them would. However, it does not seem to want to do this either.

image from www.hypebot.comA Horrifying Solution

Rather than innovate to substantiate higher ad rates or create a more compelling model to convince artists to participate in its service, it came up with a horrifying solution: hire lobbyists and file lawsuits to get the US government to drive down the cost of the commodity they want to use at the expense of the person who created it. In other words, get the government to lower music creators’ wages. This “solution” allows Pandora’s expenses to go down and its profits to go up making its shareholders very very happy. Unfortunately, the same cannot be said for the music creators and copyright holders who will be earning less.

The irony of the situation can be found when listening to Pandora’s CEO Joe Kennedy and/or its Founder Tim Westergren talk publicly about how they care about the musician, so much so that they have over one hundred as employees. However, I suspect they would never single out only these Pandora employees and lower their salaries so Pandora’s profits go up… and yet, in a way, this is exactly what they are doing.

Music creators were not put on this earth for Pandora to exploit to make a profit. If Pandora wants to use someone else’s music and pay very little for it, it needs to convince the music creator and copyright holders as to why – a symbiotic relationship must exist that makes sense to both sides. It’s not the artist’s problem if Pandora can’t sell ads at a higher rate just as it’s not Pandora’s problem if music listeners don’t like an artist’s music. If artists don’t want to let Pandora use their music at a price Pandora wants and Pandora goes out of business, then Pandora goes out of business. It’s not the end of the world.

However, Pandora seems not to understand this. Case in point can be seen by its recent lawsuit against ASCAP. Pandora’s justification for the suit against ASCAP appears to be that it’s just not fair for Pandora to pay music creators and copyright holders more than other companies to use their music. Further, Pandora seems to believe the cost associated with using other people’s music slows down its innovation and lowers its profits (http://www.billboard.biz/bbbiz/industry/legal-and-management/pandora-sues-ascap-for-lower-rates-1008003232.story). Funny (sad) that what’s fair to the artist never comes into the conversation.

It’s important to note that ASCAP was hired by hundreds of thousands of individual songwriters to negotiate licenses and fair wages for the use of their songs. By suing ASCAP, Pandora is collectively suing these hundreds of thousands of individual artists and copyright holders in an attempt to ensure they will be paid less for the use of their music. If Pandora wins, the US Copyright Royalty Board – a governmental body – will coerce ASCAP to license the music of its members to Pandora at a lower rate.

It is not a valid argument for the government or a company to take rights and revenue from the artist under the guise that the cost of music stifles innovation or profits or that “they are paying less so we should too”. How can artists innovate, create and thrive if they are not being paid a fee that they agree is fair compensation for their work? (How wonderful life would be if things worked like this: You see something you want but think the owner is selling it at too high a price, so you ask the government to force the other person to sell it a lower price.)

image from www.google.comWithout the music creator, there is no industry, no fans, no gigs, no Spotify, no iTunes, no labels and no Pandora.
And yet, somehow, the artist usually seems to be the one getting unfairly exploited. In this case, let’s just hope the artist’s voice gets heard before the Pandoras of the world can ram through legislation that may financially handicap music creators for years to come.

In the meantime, if artists would like to have a more direct say and involvement in the Pandora battle, there are some actions they can take. If you have written a song, and that song was recorded either by you or someone else, and that song is on Pandora, Pandora MUST get a license to the right of Public Performance to stream the song. If it streams your song without this license, it is violating copyright law.

In the US, there are two main organizations that represent this right of Public Performance: ASCAP and BMI. As a songwriter – or representative of the songwriter called a Publisher – you can become a member of either organization. Once a member, call them up, tell them you want to give them negotiating power to get you a fair wage for your work by temporarily withdrawing your rights from their organization in regards to Pandora. This will then require Pandora to remove your song from its service unless it gets the license from you directly. By withdrawing that one small right from ASCAP and/or BMI, it will give them leverage to fight on your behalf.

And let them fight it out for you; this is what they are best at.

If you are not a member of a PRO, and Pandora is streaming your song it is most likely doing so without the legally required license. You can contact them and tell them to remove it or pay you a license fee that you deem appropriate.

It’s vital that artists, songwriters, composers and copyright holders stand their ground during this transitional phase of the music industry to set a precedent by demanding fair wages on which to build a sustainable future.

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  1. Jeff – I value the ferocity with which you defend artists, and I feel we both have our hearts in the same place, but there are at least two things about this article and argument that are disingenuous.
    Saying, “they need their company to become more profitable” about a company that is not profitable is misleading. You never mention in your entire article that no company, including Pandora, has yet to turn a profit under these compulsory licenses. This is not a situation where a company is thriving and looking to increase margins, as your article implies. Zero companies have been able to make these fees work, and it’s silly to assume that it’s because they aren’t selling their ads for enough.
    The second thing that gets left out of these arguments is what a fair rate truly is and why you think the unsustainable one Pandora pays is the right one. I don’t see artists up in arms that Sirius is ripping off artists, and they pay considerably less. Why is it so evil for Pandora to lobby for the same rate that other companies in the space pay?
    More importantly, what is the justification for the rate being what it is? Why not make it 6 dollars per stream? Is that more artist friendly? Sure. It’s completely unreasonable, but it’s a “wage increase” for artists, so let’s lobby for that.
    We can all recognize that $6 per stream is ridiculous. I would argue that the rates Pandora pays are also ridiculous. Other than thinking artists should earn more money in general, I have yet to hear a compelling argument for the rate being what it is.

  2. “More importantly, what is the justification for the rate being what it is?”
    Isn’t there a government funded rate-setting board that gathered lots of information from the various stakeholders and then set the rate at a place they deemed fair and appropriate?
    Didn’t this organization hear arguments from those same stakeholders the last time they met and adjusted the rates going forward?
    What would be your suggestion to improve this process?
    It seems to me that Pandora signed up voluntarily (by going into this business, and then selling the business to the public) to have their rates set by this entity. They had a chance to express their point of view, then the board set the rates. But Pandora didn’t like where the board set them, so they are going over their helmet to congress and asking it to dissolve the exact board that congress setup to make decisions about these rates.

  3. My primary suggestion for improving the process is that the rate be based on a percentage of revenue just like all other rates in the space. Saying that Pandora ought to pay a total of 40% for the music that their business relies on sounds pretty reasonable. Maybe even 50%.
    Picking a per-stream number based on a historical willing buyer willing seller standard that doesn’t take into account what the actual value of the material is, or that this is a new industry, doesn’t make any sense. If that rate-setting organization picked $6 per stream, should we just assume they’re smart people who know what’s best across the industry? Isn’t it reasonable to reassess the rates every few years based on the outcome of the previous rates?
    We’re in year X of absolutely no company being able to build a sustainable business on the current rates. Why is it unreasonable or evil to ask for a reassessment based on this fact?

  4. So now Jeff is promoting Ascap, and everyone else is the enemy.
    I seem to remember Ascap being the enemy when he was at Tunecore.

  5. Time for a streaming service that demands exclusivity for a set royalty rate. The new iTunes streaming would be an ideal platform. They would have the clout to enforce their exclusive agreements with their artists. Hopefully Apple/iTunes consider such a model.I would be more than happy to enter into an agreement with Apple/iTunes streaming. I miss Steve Jobs.

  6. @earbits
    With all due respect, its not the artist’s responsibility or burden to make other companies that use their music profitable. If Pandora’s model does not work, then it just does not work. There are other companies that have come up with new models that do work. For example, Apple uses iTunes, iTunes Match and (soon) its new streaming radio service to drive hardware and software sales while reducing customer churn. Amazon uses it to get people to create Amazon accounts and buy other things that are not music. Best Buy lost money on CD sales by selling them more cheaply than they bought them to lure customers into their stores to buy other things. And there are more examples…
    It’s not “evil” (as you state) for Pandora to want to pay a rate that is lower that another company gets, what can be construed as “evil” is Pandora lobbying and suing to get the government to coerce the artist to do so.
    The way to get the artist to buy in to what you create is by making it a must have of great value. Im not going to pretend its easy to truly create something of value, its not. Its damn hard. But that’s what they have to do.
    Look, if I’m at home and write and record a song, that’s my song, my property. The idea that the government can force its way into my home and force me to have to license my property and/or dictate the price for it is wrong. Its my song, not yours, and if I want to charge you $6 for a stream, that’s my right just as its your right to not use my music.

  7. Streaming sites should all be forced to pay the going royalty rate that radio stations have to pay.The $0.0001 for a stream is an complete joke & an insult to the artists.
    They should respect the artists & pay them a proper rate after all if it wasn’t for the artist they wouldn’t be in business.

  8. All of this “will somebody think of the artists” rhetoric is great on the surface (who doesn’t want to root for the little guys?) but there are some serious holes in the logic of this post.
    For example, if…
    1. the government sets the royalty rates
    2. Pandora wants to change the royalty rates
    3. the government is the entity that has the power to change the royalty rates
    …then why WOULDN’T Pandora try to lobby the government to change the rates?
    In the comments you (Jeff) said:
    “The idea that the government can force its way into my home and force me to have to license my property and/or dictate the price for it is wrong.”
    Didn’t they already do that when they set the rates in the first place? Haven’t they been doing that for decades for other forms of radio?
    I’m as turned off by all this legislative nonsense as the next guy, but if it’s to be avoided, the way royalties are determined would have to fundamentally change, and organizations like ASCAP and BMI would have to be willing participants in that evolution.

  9. Okay, well, seems to me you’re most concerned about the way copyrights work in general, yet painting Pandora out to be the bad guy for working within a system you don’t like. It’s like protesting a particular fighter in the UFC because you don’t like cage fighting.

  10. I agree with the premise of this statement, that even though Pandora is a public company, it has not turn a profit in its existence, and the same can be said for Spotify, Rdio etc. But Pandora’s approach is flawed. Pandora uses other copyrighted under the compulsory statute of the Copyright act, which allows them to use this work without seeking permission from the copyright owners. For the master, Pandora pays upwards of 70% of its gross revenues to Soundexchange, and for publishers, I am not sure what the exact rate is. So, I believe, for this right, Pandora should pay the majority of their revenues to copyright holders. Pandora, instead of arguing for a decrease in rates, should gather the music industry and lobby for increased rates for satellite and terrestrial radio, and requiring terrestrial radio to pay a public performance right to master owner and artists musicians. This would be internet radio fairness, not the other way around.

  11. I agree that it might be more artist-friendly if Pandora were lobbying alongside creators to bring other broadcasters’ rates up while bringing their rates down, so that all companies pay a strong percentage of their revenue for the use of music. But unless the labels are going to get behind a rate decrease for Pandora in exchange for a rate increase from others, Pandora doesn’t have that option. Without it, their only recourse is to lobby for them to be treated like everyone else, which is what they’re doing.

  12. I understand why Pandora is lobbying Congress, but from what I read recently in Billboard, most of the ire was directed towards NAB, and their unwillingness to pay a performance royalty for terrestrial radio to artists and master owners. This is were the will of the artistic community is going, and if an entrepreneur decides to start a music service based exploiting music content under the compulsory statute, it’s a business model that is unsustainable. There are options, and Pandora could choose a different model, to do what Spotify has done, and negotiate directly with rights holders, or go a different approach. There’s plenty of musical content that is not owned by the major publishers and labels, and with the emergence of authors being able to recapture rights, Pandora, or any other music start up could build a viable business exploiting true newly discovered content.

  13. That is accurate in theory but not practical. The bulk of Pandora’s listeners are there to hear mainstream music with some discovery mixed in. In addition to the operational burden it would impose to acquire licenses directly with thousands of small rights holders, it still wouldn’t make up for the millions of Coldplay streams they serve up every month. They will have to get reduced rates on mainstream content if they are to survive, and once they have, they have even less incentive to play emerging music at a higher royalty rate, or greater operational cost to acquire the content. So, yes, they could do what you’re suggesting, but it would take a long time, a lot of money, would be a huge shift in their product offering, and still wouldn’t address the content most sought after by their audience. Long story short, what is best for the industry is for them to have a sustainable rate that lets them play what they want to while paying an equitable fee to a wide variety of artists.

  14. Really, I don’t agree with your premise, that the bulk of Pandora’s listeners are there to listen to music they can hear on terrestrial radio, youtube, or on some peer to peer file sharing network. They are there because Pandora is a legal option as opposed to pirating music, so I don’t believe Pandora has to utilize the music of majors labels and publishers to have a viable business. Just look at the history of youtube. The platform was created to share videos, and now more people go to Youtube for music, than they listen to Pandora. I believe if you build it, they will come. The license itself can be located in the user agreement, which eliminates the need for the service to seek out anyone…let them come. Of course there is marketing, but Pandora spends money to market their service currently. As it stands, if the Internet Radio Fairness Act as written fails, what is Pandora’s option. They either go out of business, or come up with a new model, and now they are a publicly traded company (which I believe was a mistake to go public), their founders and executive management team can’t put all their eggs in the “I hope Congress passes the Internet Fairness basket,” Pandora has to have another strategy if their lobbying efforts fail.

  15. Great article and no matter what side of the debate – there is no doubt so many facets of the music industry needs to change.
    We are building an equitable and sustainable platform and community for the betterment of this industry and I would love if you could check it out. Support the cause if possible, and share with others. Thanks so much.

  16. with all due respect, the % of revenue model would mean that I could decide not to monetize at all and give the artists 40% of nothing. We already have that – its called Pirate Bay.
    The % of revenue model puts zero risk on the company and shifts it all to the artist. The artist is left asking “ok, I get 40%, but its 40% of whatever you can sell, and I get no say in how you develop, price, or market your product.”
    Sounds like you want all the artists to essentially become business partners with any company that wants to be there partner, yet the artist gets no say in the business with whom they are partnering.

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