Pandora vs. ASCAP - Royalty debate, thoughts + discussion

[zircon]

I saw this link posted in another thread...

http://www.ascap.com/playback/2013/06/action/pandora-buys-fm-radio-station-in-a-bid-to-undercut-songwriters.aspx

It has certainly become a hot topic lately. A lot of musicians I know are against this, but I think the kind of news and opinions we are getting are perhaps not telling the whole story. I wanted to share my thoughts here.

Plays vs. Spins - Fair comparison?

Pandora plays and traditional radio spins are an apples to oranges comparison. When a song is played on Pandora, one person hears it - or perhaps a few others who happen to be in the room. When a traditional radio station plays a song, anywhere from hundreds to hundreds of thousands of people hear it. ASCAP itself discriminates based on audience size in all sorts of royalty calculations, so it seems fairly hypocritical to suddenly dismiss that factor when discussing Pandora.

Just for comparison, let's take KIIS FM which reaches about 4 million people per week. For the sake of discussion let's say they play about 8 songs per hour on average, which I think is conservative. Over 1000 songs per week, heard by 4 million people per week... that's a lot of listener hours. But despite tens of millions of listener hours per week, they pay royalties on only the ~1344 songs they play. Conversely, if 4 million people hear a song on Pandora, Pandora pays royalties 4 million times.

Revenue != Profit

Pandora is generating a lot of revenue. That doesn't mean they are making massive profits. They've been losing money quite consistently, actually, the majority of which is going to us artists. This is money that we would not have otherwise been making. If Pandora was spending most of their money on executive bonuses or fancy office buildings then sure, that would be an outrage. But that isn't the case.

Songwriters aren't the only ones being paid

The ASCAP article only talks about songwriters - which to be fair makes sense, given what ASCAP is. But the majority of bands and artists out there are ultimately writing AND performing their own material. If you consider the entirety of artists and bands, it's quite reasonable to say that the majority of them own their rights as well. This means they will all be getting money via SoundExchange as well, and that payment is quite a bit higher. Instead of 8 cents per 1000 plays, the rate is more like $1.10 per 1000 plays (.11 cents per play).

http://theunderstatement.com/post/53867665082/pandora-pays-far-more-than-16-dollars

Here we have a comparison to Terrestrial radio paying $1522 for about 1m plays, and Sirius XM paying $181, while Pandora is in total paying $1370.

Pandora plays are very valuable

We all know the tired line from directors, producers (etc) offering only "promotion" in exchange for work. And it's easy to be cynical when people bring up the promotional value of Pandora. But I want to share my own experience here. As most of you know I release solo albums in a fairly niche genre. I don't have a label, distributor, or promoter, no fancy deals, I'm not on any blogs, no traditional radio, no magazine reviews, no live performances, and so on. In other words, there isn't a lot happening for me in terms of music promotion.

And yet despite this... my music SALES are higher than ever. Remember, I'm not doing ANY other promotion. The cause of those sales is, quite simply, people discovering me on Pandora. Many people have emailed me to say they found me on Pandora, got hooked, and bought all my albums. A great many more probably did the same thing but didn't go out of their way to email me about it.

The reason why Pandora is valuable for promotion is because (a) it is EXTREMELY targeted - if someone is hearing your song, it is very likely because your music is directly suited to their tastes, ( they provide bio + album information while the song is playing, so people can easily read more about you w/o browsing away, © it offers direct links to buy the music while you're listening. Traditional radio does none of these things.

Lobbying = bad?

I see people giving Pandora a lot of flak for lobbying the government and asking people to write their senators / congresspeople. All I'll say about this is that Pandora literally has no way of altering their music expense other than appealing to the government. Their rate is not set by the free market, but by the government. Whether or not you think the government SHOULD have a hand in setting market rates for goods/services, the objective fact is that Pandora simply cannot change that in any way other than lobbying...

The future of Pandora / royalty rate reduction?

That brings me to the final point... what about this 'pay cut' being proposed? Well, to me, it's a simple choice. If the pay cut would mean Pandora can stay in business, I'm for it. If they can survive without it and thrive, then I'm against it. Nobody WANTS to earn less royalties. But I recognize that the value of each Pandora play goes beyond my songwriter + performer royalties and translates into real, quantifiable sales + fans, which go far beyond the numbers I see on my ASCAP/SoundExchange statements.

In other words, if Pandora would go out of business w/o the reduction, I lose 100% of the royalties, 100% of fan referrals and 100% of extra iTunes / Amazon sales. If they have to do a reduction, I might get 20% royalties, but I'm still getting full income from the other two streams.

What are your thoughts?

[Mustin]

http://www.digitalmusicnews.com/permalink/2013/20130604westergren

I've seen multiple sources talk about this. Dude doesn't need to make so much money. He could easily take less and pay out more. That said, we don't know how much he's putting that money back into lobbying and what not.

And, as you know, your experience on Pandora is not the norm. Not everyone is seeing the same returns on the exposure. Did you have a different view point on Pandora before you started seeing its value to your career? Genuinely curious.

Also, I think there's a bit too much whining from artists in general. If you're making music to make money, you're screwed. That one dude's letter saying something like there wouldn't be any music left to put on Pandora when all the musicians are working at Walmart was just stupid. People are putting out so much free, quality music EVERY SINGLE DAY in THIS community, it's hard to even compete -- let alone keep up with! I still have a backlog of stuff to listen to that people in this community have released for free. I personally struggle with finding ways to stay relevant with music that is for sale when there are so many people giving it away.

Ultimately, I'm with you in the "I'll take what I can get." Someone enjoying what I've made is better than no one!

[Moguta]

http://www.digitalmusicnews.com/permalink/2013/20130604westergren

I've seen multiple sources talk about this. Dude doesn't need to make so much money. He could easily take less and pay out more. That said, we don't know how much he's putting that money back into lobbying and what not.

That does seem like an awful lot of stock $$$ to be cashing in! If he's putting that money back into company expenses such as lobbying, would that be reported on Pandora's public accounting statements?

I had sympathy for Pandora's plight, but if all of this is going to the CEO's coffers and nowhere else I may really have to question that.

[Native Jovian]

In other news, for-profit companies want to make profit, and CEOs make a lot of money. If Pandora is trying to get into lower royalty rates on a technicality by buying a terrestrial radio station then that's kinda shitty, but saying "they don't pay enough royalties as-is" when they're already paying more than other formats, or "their executives are making too much money" when that doesn't really have anything to do with anything is not a particularly compelling argument.

[zircon]

Well, I'll point out that cashing in stock options is not the same thing as a salary. If Tim cashes in his options, that doesn't come from Pandora's revenue nor does it affect their bottom line.

[Patrick Burns]

Pandora plays are very valuable

. . . The reason why Pandora is valuable for promotion is because (a) it is EXTREMELY targeted - if someone is hearing your song, it is very likely because your music is directly suited to their tastes, ( they provide bio + album information while the song is playing, so people can easily read more about you w/o browsing away, © it offers direct links to buy the music while you're listening. Traditional radio does none of these things . . .

This is definitely the best part of this whole contrast, for me. And it is a key direction these services/technologies will continue to move in. The 1) more targeted the plays are and 2) easier the songs are to purchase, the better off musicians are as a whole (and the less convenient piracy becomes).

iTunes set the precedent for ease of purchase, and Pandora set the precedent for ease of discovery. I foresee increased unification of these kinds of services and others (like song identification, a la Shazaam), incrementally making everything more streamlined. All these advances breathe life into niche markets and smooth the bell curve.

I have a question from left field, though. Do you think it would ever be practical for these services, if they become streamlined, unique, and valuable enough to the consumer, to NOT display the artist/album/song names until the user purchases the song? The user could favorite the songs, incorporate them into their personalized channels, etc., but they would be denied and textual information until they owned the song.

edit -- as for the whole CEO salary thing, it's just the reality of what value is: Tim Westergren's industry knowledge, contacts, company knowledge, etc. have very huge concrete value to a company (and its competitors) that has been providing valuable solutions for music consumption. Retrofitting artists into that equation, we're simply creating solutions to problems that don't exist yet; i.e. there is no pre-existing problem of the lack of Patrick Burns music in this world.

Edited July 1, 2013 by Patrick Burns

[Moguta]

Well, I'll point out that cashing in stock options is not the same thing as a salary. If Tim cashes in his options, that doesn't come from Pandora's revenue nor does it affect their bottom line.

Isn't it common for a company to sell stock to raise funds for the corporation as a whole, though?

[Mustin]

Well, I'll point out that cashing in stock options is not the same thing as a salary. If Tim cashes in his options, that doesn't come from Pandora's revenue nor does it affect their bottom line.

This is a good point as it only affects the value of Pandora as a whole. Didn't think about that.

Also, Patrick Burns, I don't think anyone would be cool with the text of what the artist is, etc., not being there. Also, the further we go out from here, the less there is of a chance of an end user owning anything. As with some software, we're only licensing it from the company and never really own it. I think music may be chasing films to be the first medium that only licenses its content to the user. Meaning, you'll never be able to have it, but you can stream it on the reg (e.g. Netflix).

I also don't know very much about this so feel free to educate me. Just my "off the dome" comments.

And just for the record, love iTunes as an artist, hate using it as a consumer. But such is Life.

[Patrick Burns]

Yeah, iTunes has its issues, but back in 2001 it was pretty consumer-friendly relative to the landscape. And as a product it had a lot of initial sway in getting music company's to reconsider their distribution strategies while they were licking their Napster wounds.

Isn't it common for a company to sell stock to raise funds for the corporation as a whole, though?

Daily buying and selling stock is an affair between owners/investors of the company, not the company's daily business or cash reserves. As I understand it, the only way stocks ever affect the company's bottom line is by issuing new stock, such as an IPO or a follow-on offering. But a company needs a really good reason to do that. The IPO offers a way for the company to get some initial cash while giving the initial owners and venture capitalists an avenue to cash-in on their ownership if they so choose. Issuing new shares later on, i.e. a "follow-on offering," can again raise cash for the company but in the process dilute the value of the stock. An important way to consider follow-ons is that a company has opted to do that INSTEAD of issuing bonds (like getting a loan) to raise cash. It doesn't look get when a company dilutes the value of its stock for cash instead of issuing real debt it plans to pay back in the future.

TL;DR, No, not really. (But I'm not a business major.) The best way for a company to get cash is to earn it, the second best is to issue bonds, and the third is issuing more stock. Follow-ons are a finite and sometimes unconfident strategy.

---

Anyway, it's really fascinating learning about trading stock. You may ask, if buying and selling stock doesn't affect the company's cash or revenue, why does a company even care about it's stock price? Well, for starters sometimes those in management own a lot of stock, so they hope to cash-in someday. Also, shareholders collectively have some control over company management, so as a manger you want to keep your shareholder's happy with a healthy stock price. Also, if the stock price gets too low, you become an easier target for a hostile takeover by competitors. And the price of stock is often used as indicator of company health, so if a company wants to get bonds with low interest rates, they want to keep their stock performing.

Otherwise, stock price is a surprisingly detached and arbitrary value. There isn't really an authority that "sets it;" it's just based off of what people have been able to get lately when they sell a share to another person. It's almost akin to currency in that it only has value as long as people agree that it has value, and the tend to agree that it has value when the company issues a strong quarterly report, pays dividends to shareholders, or repurchases its own stock.

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Back to Pandora, I'm anxious to see how they evolve in the landscape. There's an ecosystem of music services out there, each with compelling features (song identifying like Shazaam, music discovery like Pandora, ease of purchase like Amazon & Apple, social media aspects like Soundcloud), but not all of the services are hugely useful or profitable as balkanized as they are.

The future is conglomeration, but I don't know what's going to happen to Pandora. They won't be the ones to do the whole ecosystem, but they might be acquired. It may depend on the value of their Music Genome Project, but I'm not always convinced of its music-discovery value over other more basic forms of data mining, like "people also bought." (The categories seem highly arbitrary when I check them on my Pandora playlists.) Apple will obviously be using whatever "genius playlist" algorithms it has on iRadio, so it will be interesting to see which one users find more accurate. I think the personal touch of the Music Genome Project analysts probably creates a better library of music, but who knows . . . unless something changes, it seems Tim Westergren is on track to liquidate all of his holdings in the next couple years. Maybe that's his opinion on the value of the Music Genome Project; maybe it's just smart housekeeping.

Edited July 1, 2013 by Patrick Burns