21 Comments

Summary:

Musicians and popular radio service Pandora are throwing mud at each other again. Who do you side with? Here’s an easy-to-read Q&A to explain the issues.

pink-floyd-pandora
photo: Rani Molla

How do you choose sides when a beloved band and your favorite radio service start fighting? That’s the dilemma confronting music lovers this week after members of Pink Floyd reunited long enough to pen a screed in USA Today that accuses Pandora of plotting to rip off musicians.

The episode is just the latest flare-up in a long-running rumble over royalty rates in the digital age. This should mean a sober debate on economics and policy — but this is the music industry, so instead we get lies, invective and propaganda from all sides. That’s why we’re offering a plain English Q&A of what the fuss is all about. (If you’re just here for Pink Floyd, skip to the end for a treat).

Update: Pandora founder Tim Westergen has written a forceful response, saying the recent attacks are an orchestrated campaign by the RIAA and that a number of the claims — such as Pandora advocating for an 85% pay cut — are flat out wrong.

Why is Pink Floyd attacking Pandora?

Roger Waters and his mates say that the internet radio service wants to trick musicians into supporting a law that will cut their income by 85%. The band and others like Cracker’s David Lowery claim Pandora wants to use their songs to get rich without paying a fair share. Specifically, the bands are mad that Pandora is promoting a law that would reduce the amount of royalties it has to pay whenever it plays a song.

What does Pandora say?

Pandora, which has around 70 million monthly users, is upset that it pays higher royalty rates than other types of radio services. For instance, unlike AM/FM stations, Pandora has to pay not just songwriters but also the musicians who performs the songs. And, unlike satellite services like Sirius XM, which pay a “fair return,” Pandora must pay “open market” rates as determined by a panel of questionable legitimacy.

The company also believes the music industry discriminates against it in favor of internet services like iHeart Radio, which is controlled by big radio incumbent Clear Channel. The royalty rate issue is a make-or-break issue for Pandora, which reported that 80 percent of its revenue last quarter went to content acquisition (Pink Floyd counters this is like a grocery stores complaining most of its income goes to food acquisition).

Why is this coming to a head now?

Last year, the music lobby beat back a proposed law called the “Internet Radio Fairness Act.” The legislation, championed by Pandora, would have created some consistency across a crazy patchwork of radio laws that set out different rules and rates for different types of radio technology.

But, as Billboard noted, the Radio Fairness Act isn’t dead — it’s just hibernating. The law was introduced too late in the legislative cycle to pass the last Congress, and so Pandora and others are likely ramping up to try again (and are using stunts like buying an FM radio station to get a point across). The Pink Floyd article, therefore, appears to be part of a larger PR strategy to undercut momentum for the law.

Is a new law the only way to resolve this?

The fight over the law is just one part of a multi-pronged battle that also includes the courts (where Pandora is suing one of the royalty collection societies) and an agency called the Copyright Royalty Board. Public opinion, shaped by the likes of Pink Floyd and Pandora’s volatile CEO, Joe Kennedy, will also have a hand in how all this turns out. Meanwhile, the stakes will only get higher as new players like iTunes Radio enter the internet market.

So who’s right — Pink Floyd or Pandora?

They both have a point. On one hand, it seems absurd that the royalty rate for a radio song should be different based on what sort of device it is played on: “Wish You Were Here” is great no matter if it plays on Pandora, Sirius or an old-school FM station. There seems to be no logical reason to discriminate against Pandora simply because it uses the internet as a delivery device.

As for the musicians, they are right to be concerned about dwindling royalties. The money they used to earn from CDs and records has dropped off a cliff and income from iTunes or Pandora is not making up for it.

Ultimately, this is a choice about how America wants to subsidize its musicians and other artists. On one hand, the multi-layered royalty system developed in the 20th century is not holding up well, and copyright law has become corrupt and over-extended — it makes sense to scrap parts of this system. But on the other hand, though Pink Floyd is doing just fine, it’s not clear if there is enough money in the system to support and develop young musicians.

The good news is that Pink Floyd and others are earning new revenue streams thanks to the likes of YouTube. Here they are playing “Echoes” at Pompeii (skip to the 3 minute mark — so good) :

You’re subscribed! If you like, you can update your settings

  1. Tetracycloide Tuesday, June 25, 2013

    Pink Floyd may have a point but if they do it’s got nothing to do with Pandora. ‘Concern about dwindling royalties’ among a few big name artists might be related to a pervasive problem or it might not, a link is not established. Even if it exists there’s absolutely no logic to insisting Pandora and Pandora alone needs to make up the difference with higher rates. Honestly it seems like a vendetta at this point since they’re even willing to charge lower rates to internet broadcasts of terrestrial radio. So much lower that Pandora was reportedly looking into buying a radio station (in 2013!) of all things. I know you want this to seem balanced and all but the reality of the situation is not balanced. Pandora is right and at best Pink Floyd is right about things that aren’t even on topic.

  2. Reblogged this on STORY 2 SUCCESS BLOG and commented:
    lookinh at it ,they are both right but what is wrong is aking pandora to pay more than other services of it kind its not fair.

  3. The question should not be why internet services have to pay more than radio stations, but why the radio stations don’t have to pay performers. If that were the case for movies and TV shows, only the screenwriters would get compensated when their video performances were broadcast, and anyone would be able to start their own internet TV station by just making a deal with the writers.

    I don’t understand why Pandora feels entitled to low cost access to content; Netflix negotiates with video content creators to get streaming rights. Are the performances of music that worthless that anyone should be allowed to publish them?

  4. Zach Tirrell Tuesday, June 25, 2013

    “The money they used to earn from CDs and records has dropped off a cliff and income from iTunes or Pandora is not making up for it.”

    Do you have a citation on this? I hear this stated a lot, but wonder what the truth behind this is. What does an artist make from the combined sources of Pandora, Spotify, iHeartRadio, YouTube, etc. While I understand that the landscape is more complicated and perhaps the pieces from each are much smaller than CD sales at the peak… is there a good source for combined revenue from all distribution year over year?

  5. A true Floyd lover would not skip to the three minute mark.

    1. If we had a like button, I would have liked your comment.

  6. Interesting. Something that is earning less money today than when it was released over 35 years ago.

    That being said, all the royalties should be at the same rate regardless of medium.

    1. We’re all making less in real terms than we were 35 years ago. Well, 99% of us are. Thanks, Retardlickons!

  7. The market, vs. law, should be free to set the royalties in a different medium. There is no compelling reason to intervene at this time.

    The article left out Spotify and didn’t discuss how they have spent the effort to resolve the licensing and payment issue directly – through arduous negotiation – vs. trying to get a law passed.

    I think this is an important comparison.

    I’m not sure why music is different, but no one thinks that Netflix should have video content available to them at certain prices as determined by Congress, and that the prices they pay can’t be different than what cable pays.

    This is the nature of markets, and I think someone needs to show a compelling reason why Pandora shouldn’t work it out through negotiations first. We all can agree that technology markets move fast enough that locking certain models into legislative fiat is risky at best, with many potential unintended consequences around locking in the wrong business models, reducing innovation, etc. — and smacks of crony capitalism at worst – which I think we all agree is the opposite of the innovator’s ethos that we all love.

    My two cents.

    1. This is a really good point that I’d usually wholeheartedly back. With copyright, though, it seems like content holders are happy to maintain the status quo at the expense of consumers. If there’s a time to legislate to ensure an industry doesn’t stifle innovation or play favorites re: who gets sweetheart licensing deals, perhaps this it it.

      Pandora — and internet radio, generally — just isn’t the same business model as traditional radio, and is arguably better for most artists. But the record labels and the big acts they’ve swayed to their side just don’t care or don’t get it.

    2. Thanks for the smart comment, Princeton Al. I too am generally wary about the government interfering in industry — the market is typically better at picking winners and losers.

      But I think my colleague Derrick is right to point out (here in the comments) that there are anti-market, anti-consumer forces here in which entrenched industry players are abusing their copyright power (which is itself a government-granted monopoly in the first place).

      I’d also argue that one-off negotiations don’t work for something like music catalogues — there needs to be a wholesale clearance mechanism or else conglomerates will discriminate against new entrants (like the industry is doing to Pandora).

  8. After years of complaining about piracy, someone wants to pay musicians for online music and the musicians complain it’s not enough. A one-hit wonder like David Lowery should be glad he gets anything (although i did just listen to Low for free on youtube and it brought back some nice memories, Thanks Dave :)

    So you wrote a song. Good for you. How about this, get out on the road and earn a living day to day like the rest of the world

    1. Sure, just as soon as Pandora stops using that one hit to make money. Oh, wait…

    2. Sorry Benny, the difference between streaming and piracy is a fraction of a cent, nothing more.

      As far as Lowery. He’s been out on tour for a few months now.

  9. Philip Inghelbrecht Wednesday, June 26, 2013

    Here’s the part I don’t understand. Terrestrial radio only pays royalties to songwriters, nothing to record labels (i.e. there’s only a license required for the public performance of the musical composition, not the sound recording). Pandora, as an equivalent of terrestrial radio, pays both songwriters (at a higher rate, I must add) and record labels (through Soundexchange). Phrased differently, under the current legislation and rates, it behooves musicians that music shifts from FM to online … They stand to make an order of magnitude more money from radio (which is different from on-demand, TV, iTunes, etc.) as distribution channel. I should also add that the Pandora’s model is fairer to smaller musicians i.e. rates are paid based on consensus surveys, not sample surveys, of “airplay”.

    While I am sympathetic that (big) artists don’t make the amount of money they used to make from CDs, new radio services like Pandora shouldn’t be blamed for it. Roger Waters claims are a bit below the belt i.e. it’s easy (if not foolish in this case) to attack the newer guy. What would have made more sense is that he arm-twisted FM radio stations to pay the same rates as online radio.

    For what it’s worth – I am not a Pandora fan-boy; you will find me on 8tracks instead. I am, however, a Pink Floyd fan and buyer.

  10. “The episode is just the latest flare-up in a long-running rumble over royalty rates in the digital age. This should mean a sober debate on economics and policy — but this is the music industry, so instead we get lies, invective and propaganda from all sides.”

    Mr. Roberts, as a journalist, you have failed. I work in this space and do not appreciate or accept your demeaning characterization.

    Will Buckley, Founder / President, FarePlay

    1. Mr. Buckley, the sentence may be sharp but I stand by it. It’s difficult to have a good-faith debate about music and copyright when many of the facts are distorted by tendentious “studies” and aggressive lobbying. These forces seem to be at play in the present debate: Pink Floyd’s 85% figure appears to be flat-out incorrect and Lowrie is disingenuous not to explain he receives performance rights royalties. Meanwhile, the tech industry is often cavalier about the effects of piracy on musicians.

      All this doesn’t mean that there are not honest brokers in the mix — it’s just hard to find them.

Comments have been disabled for this post