Pandora in trouble
As one of the few bloggers who cares to defend the SoundExchange decision to hike internet royalty rates for those who choose to use the immoral government royalty-rate system (sorry, I have to keep saying it, because nobody else will), I feel I should comment on the recent news that Pandora is about to pull the plug. Lately a number of news articles have come out, and their headlines usually amount to “Music business about to kill internet radio.”
As reported on afterdawn.com:
According to Pandora founder Tim Westergren, the hugely popular web radio site is about to go offline, citing new pressures from the record labels that will double royalties paid to the copyright owners.
To put this situation in stunning clarity, Pandora has over 1 million listeners per day but three quarters of all revenue for 2008 will got to paying off royalty fees. A recent decision by a federal panel will make those fees even higher by next year. By 2010, Internet Radio royalty fees will be about 180 percent higher than those of satellite radio.
Westergren adds,“this is like a last stand for webcasting, we’re losing money as it is. The moment we think this problem in Washington is not going to get solved, we have to pull the plug because all we’re doing is wasting money.”
For an article that’s supposed to put the situation in “stunning clarity,” it’s missing a lot of facts. As most articles on this issue do, it just describes the incredible royalty rate jump and leaves it to you to assume that it’s not fair. And at first glance, it’s completely understandable to think that something’s not right. But like every issue, you have to look at all of the facts that are relevant to the issue, figure out what principles should be applied, and then cut out the non-essentials. On this issue, that means you have to throw away all of the emotion and ambiguous notions of “fairness” and answer the basic question: Who owns the music? Who gets to control its publication and reproduction? And that’s where the webcasters lose on this issue. Their answer is that *they* should get control (or at least some control) at the expense of the artist’s rights to their own works.
Also, I’d suggest you take a look at Westergren’s quote above and look at who he’s asking for help. He’s not asking artists to offer their music for free publicity on Pandora. He’s not trying to negotiate with record labels to get a lower rate. Instead, he’s asking Washington for help. He needs the government to force a lower royalty rate on all music artists. To keep him from “wasting” his money (i.e. paying royalties that he thinks are too high).
As neat as a service like Pandora may be, I don’t sympathize with Pandora on this. If they can’t afford to pay for the service they’re trying to offer their customers, they shouldn’t be in that business.
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5 Responses to “Pandora in trouble”
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“. . . Pandora has over 1 million listeners per day but three quarters of all revenue for 2008 will got to paying off royalty fees.”
I am not familiar with the situation. Where does Pandora’s “revenue” come from–advertising that appears on the site?
If they are not already doing so, could Pandora simply charge a fee for use of the site? Or does law, technology, or economics block that possibility?
I don’t know Pandora’s financial situation and I’m not a user, so I can’t say for sure how they make their money. So this is a speculation, but I’d guess that Pandora can make money by selling advertising on their site, on their radio streams, and by offering “premium” service (like a radio stream without commercials).
I probably should explain this a little further. The product that Pandora provides is internet radio. They’re just like any radio station you’d pick up with a normal radio, but instead you can listen to them over the internet. In addition, Pandora’s service is set up to broadcast music that they think that *you* will like, instead of playing the same music to everyone (like a regular radio station). I think it’s a neat idea, but the issue here is how they obtain the rights to play other artists music on their station. Instead of negotiating with musicians and their representatives directly to gain the right to play their music, they want the government to essentially pass a law that sets a common and low royalty rate for them to play anybody’s music. With their current revenue stream, Pandora is not able to afford to pay the current government high rate and stay in business.
I think that musicians should have the right to control their intellectual property, and that includes the right to refuse potential broadcasters and the right to set their own royalty rates. When the government sets a rate for them, they’re essentially taking away the musician’s right to their creations.
And just in case this makes the situation easier to understand: The government has been interfering in the music business for a long time, and some years ago the government granted webcasters the common, low rate that they wanted. However, last year the government decided to dramatically raise that rate to a level that is out of reach for most webcasters. They all cried foul, but I thought it was good. I don’t think the government should be in the music business, but so long as it is I want it to be as hard as possible for anybody to take advantage of it.
Want to take a moment to realize the problem is in the disrepency in costs between mediums? why should internet radio be penalized over satellite? Or radiowaves radio? It’s asking washington to maintain for NO monopoly of one medium, and as satellite itself maintains that internet radio is a competitor (so the xm sirius merger is ok). This is not asking washington to more of less subsidize or help pandora, but stop unjust penalization that is affectively merely helping everyone else. thanks.
I have to disagree with most of this write-up. It’s entirely based on the American belief that everything has to be based on monetary value. There’s so much more to life than America’s true God, the dollar. A statement like, “…can’t afford to pay for the service they’re trying to offer their customers…” just reaffirms the greed ethic now being instilled in every US citizen. Try to legislate the removal of the tax-free status of religious institutions and you’d see a completely different tone being applied to that exact same sentiment. This issue on who really deserves to make some money in the music industry is completely distorted by the US corporations.
Ed,
My post is not based on “the American belief that everything has to be based on monetary value.” Instead, it’s based on the idea that every individual — including musicians — must have the right to control their life and property, and that includes the right to intellectual property. Every musician should be able to control the publication of the music he or she creates. Whether they want to charge $.00000001 per play or $1,000,000,000 per play, it should be their call — not the government.
And like it or not, but the music companies pushing SoundExchange own the rights to a lot of music that’s being played. If they want to push the price of *their property* to a rate that someone else can’t afford, then it’s too bad. Negotiate. Make deals with musicians that don’t want their music to be played. Just don’t force musicians to give up the right to their music.