Blog Post

Bid to deny Pandora an FM station reflects out-of-date music royalty system

The town of Box Elder, South Dakota, is an unlikely battleground in the ongoing clash between the music industry and streaming service Pandora. A group representing musicians this week asked the FCC to deny Pandora(s p) a license to operate an FM radio station there because the company will not serve the “needs and interests of the residents of Box Elder.”

The good folk of Box Elder — nestled between the Black Hills and the Badlands — may wonder how their airwaves became the subject of a tussle between a controversial Silicon Valley company and the Washington-based ASCAP, a group that collects copyright royalties for songwriters. But in the larger fight over the price of music in the digital age, the dispute over Box Elder’s FM station makes a weird kind of  sense.

Recall that Pandora is lobbying Congress to lower the rates it must pay every time it plays a song via the internet to one of its 70  million listeners. The company says ASCAP is demanding unreasonable rates, especially as Pandora — unlike conventional radio stations — must pay not just songwriters, but also the musicians who perform the music. Pandora says the high rates make it impossible to earn a profit. Well-known artists like Pink Floyd, meanwhile, say Pandora pays next to nothing and is trying chisel musicians.

Into all this, enter Box Elder’s KXMZ-FM, which plays “Today’s best hits.” Pandora decided to buy the station to make a point about royalty rates but still needs the FCC to approve the purchase  — this is par for the course when a radio station changes hands.

In its objection to the FCC, ASCAP argues the purchase should be rejected on the grounds that it’s a cheap publicity stunt and because Pandora failed to disclose how much of the company is foreign-owned.

So what to make of all this? On one hand, ASCAP is right: The Box Elder purchase is indeed a publicity stunt, but that’s the point. As for the objections about foreign ownership (Pandora’s investors include funds in the Caymen Islands and Canada), those might be technically correct, but are still silly from a policy perspective.

Recall the reason for the FCC approval process in the first place: Radio spectrum is a limited resource, and the government wants companies that use it provide certain things in return. These things typically include a commitment to play news, public service announcements and so on. As for the foreign ownership rules, those help ensure that a hostile power, like the one in Red Dawn, can’t take over the airwaves for propaganda purposes.

This regulatory trade-off, in which companies get air wave access in return for certain conditions, is sensible. But in the digital age, when radio and TV access are not limited by spectrum constraints and information is everywhere, it is less critical to enforce. That’s why the fate of the FM radio station may be important to some residents of Box Elder, but it’s unlikely to make too much difference if Pandora or someone else owns it.

In the bigger picture, Box Elder is just a small symbolic battle in a great game that pits technological upstarts like Pandora and Spotify against a music industry still struggling to recoup lost revenue from CD sales.

While both sides have valid points — Pandora shouldn’t pay more simply because it’s digital, but musicians need a sustainable compensation system — the focus on technology may be misplaced. As a lawsuit last week from singer Aimee Mann reveals, the best way to ensure musicians get paid may be to focus on the inefficiencies created by the music industry middlemen who handle the payments.

Box Elder, SD

6 Responses to “Bid to deny Pandora an FM station reflects out-of-date music royalty system”

  1. I read the four comments above. I guess I’m thankful that there are only four and I’m hoping that there aren’t more of the same ilk.

    ASCAP has nothing to do with distribution. I’m not a fan of theirs, but that’s apples and steak.

    I cannot believe the number of people that don’t understand that Pandora and Spotify are polar opposites in the business. Just because they both use streaming technology doesn’t mean their business model is the same. If you do not understand the differences please don’t even comment.

    And Mark, does this also apply to Rachel Maddow and Chris Mathews?

    Good grief! If I shake my head in disbelief any harder I’ll qualify to be in the next exorcist movie!

  2. digitalmediaview

    If you rely on the government for your business model, this is the kind of arcane nonsense your strategic planning and development efforts will be reduced to…Pandora is going to have to eventually do what Apple did: license Internet radio directly from labels and publishers. The iTunes Radio deal has established the general market rate that regulators will be considering anyway, so there’s no escaping the economic consequences, and without direct deals, P is essentially land-locked in the US, while Apple and other global platforms will gain the upper hand in strategic distribution opportunities and international scale.

    • tetracycloide

      I hope when you say “rely on the government for your business model” you’re referring the labels and publishers who literally rely on a government granted monopoly for their entire business model…

  3. The industry is in for a rude awakening anyhow. I mean we all now have the tech to make our own music and record it. So what happens then? And distribution is no longer the exclusive province of ASCAP or others. That’s what scares the crap out of them.

  4. Mark Walker

    “…help ensure that a hostile power, like the one in Red Dawn, can’t take over the airwaves for propaganda purposes.” How does this square with Rush Limbaugh and other propaganda-spewers (GOP operatives?!) on the airwaves? Seem slike a reasonable challenge can be made… station-by-station.

  5. Madlyb

    Great article. The content industry (music, video, print) all have pretty arcane compensation mechanisms, but the music industry has the most disjointed and unbalanced of the lot.

    What would be truly game changing is if Pandora or Spotify actually started buying several radio stations instead of a single one in the middle of nowhere. This would force the industry to address the inequity and finally establish a unified model that aligns to the way people consume data today.