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In royalties debate, Pandora’s Westergren hits back and iTunes Radio sets terms

As the debate between Pink Floyd and Pandora shows, when it comes to paying artists for streaming music, not all services are created equal.

Pandora co-founder Tim Westergren has taken to the company’s website to respond to Pink Floyd’s claims that the streaming music service is cheating artists out of their rightful royalties. While Westergren claims that many of the band’s criticisms are the result of  “a deliberate and orchestrated campaign funded by the (music industry trade group) RIAA,” he also says that Pandora’s royalties are, by nature, structured differently than traditional radio services or Sirius/XM.

“Each spin on Pandora reaches a single person, compared to a ‘play’ on FM radio that reaches potentially millions of people,” Westergren writes. “In other words, a million spins on Pandora might be equivalent to a single play on a large FM station.

“How much would we pay in royalties for a million spins? $1,370 … 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,” he says.

Pink Floyd has been upset because Pandora is seeking the passage of a law that would cut the fees it pays to artists. Westergren says the reason it wants that law is because the board of the American Society of Composers, Authors and Publishers, which sets the royalty rates, has not negotiated in good faith. He closes his post with a letter signed by 500 independent artists in support of Pandora and of the law that would allow it to pay lower fees.

But his post doesn’t tackle the elephant in the room: the rates of competitors and, most specifically, the new rates for emerging rival iTunes Radio. According to Wall Street Journal on Thursday, Apple’s new service will pay 0.13 cents for each spin of a song, as well as 15% of net advertising revenue, dependent on the size of the label’s presence on the service. In the second year, that bumps up to 0.14 cents, and 19% of ad revenue. Pandora, meanwhile, pays 0.12 cents to the labels per listen on its free service, the WSJ says. It says Apple is also offering music publishers more than twice as much in royalties than Pandora does.

According to the WSJ, Westergren called the comparison between iTunes Radio and Pandora “apples and oranges.” Because the companies operate differently, the royalty rates may reflect that in one way or another, he said.

One piece of the puzzle that remains unclear is why each of the streaming services has to negotiate its own rate deal. The Recording Industry Association of America (RIAA) and the American Society of Composers, Authors and Publishers (ASCAP) have remained mum as this discussion has unfolded, and the process by which these rates are set remains opaque. Both Pandora and iTunes Radio may be right or wrong on certain issues, but without more detail on how the rates are arrived at, it’s hard to know what’s best for the artist or the consumer.

2 Responses to “In royalties debate, Pandora’s Westergren hits back and iTunes Radio sets terms”

  1. digitalmediaview

    Tim W’s protestation is weak. iTunes Radio pays way more that Pandora, 50%+ more to labels, 100%+ more to publishers. And their minimum commitments mean long term AAPL will commit to twice as much across the board as a floor. The difference between the services is minimal in terms of skips and rewinds, so the “apples and oranges” comparison is absurd. P has no meaningful defense and will be exposed as the debate continues.

  2. Nicholas Paredes

    We want neither industry dictating the terms of revenue for content. If the product side developed the revenue models, realistically priced content would never evolve, thereby never allowing artists a revenue model. Artists, or more accurately, the RIAA should never be allowed to dictate the prices on new product models, otherwise innovation will cease. Both Pandora and Pink Floyd are both too interested in specific pricing models.

    It amazes me that Apple always comes to the table paying more than what was expected, and develops solid product models. I have heard from smaller labels that iTunes is the only music commerce engine where they actually make enough money to survive.