Pandora’ing “fairness”

Yesterday was much more important to radio than the Fed interest rates. THe copyright royalty Board (CRB) made its decision what the fair amount to pay for playing music is over the Internet for the next 5 years.

* Boring history part *

Since it became possible to record music for playback, there has been a fight over who should get paid and how much. Originally it was mass produced records (see: Victrola) but as radio appeared, rules were needed for playing recordings over the radio – in the early days, music was performed live.

Those music rights have several pieces – the composer that wrote down the notes, the lyricist who wrote the words (if applicable) and the musicians who performed the music. The first two groups were paid via ASCAP, and later BMI and SESAC. Performers were paid whatever the terms of their contract with the record company said. Many were paid nothing.

Skipping lots of the story, over the air radio (AM/FM) pays nothing to the artists – that’s the job of the record labels. Radio is giving away free publicity, after all!

Along comes Sirius and XM satellite and they say “Me too!” – we are radio, so we should get free music too!

The NAB had a hissy fit.
NAB: “That free ride is for us, not for you! We have an FCC license, and you don’t!”
Sirius: “uh, yes we do!”
NAB: “but our signal goes through the ether!”
XM: “there is no such thing as the ether”
NAB to Congress: make them pay – a lot!
Congress: “you got it!”
NAB: “hey this streaming on the Internet is a great idea!”
Sirius: um, that’s not “over the air”
SoundExchange: Sirius is right. Pay up
NAB: so sue us!
SoundExchange: OK
Judge: Radio, you lose – pay SoundExchange – Retroactively
NAB: highway robbery! There was no music before radio! We created you!
SoundExchange: Remember Victrola?
NAB: well that was then. Kids would not know music existed without us
SoundExchange: that’s changing. Apple sells a ton of music for iPods. They don’t need you
NAB: OK, you win. We will stop streaming!!!
SoundExchange: suit yourself
[crickets chirping]
Pandora: hey we have a great idea to play music over the Internet – we’ll pay you $400 million a year to hand out to musicians who are getting screwed by the labels and radio
Musicians: WTF is this check from “SoundExchange”? In 30 years I haven’t been paid a cent
SoundExchange: it’s your royalty check from SiriusXM and Pandora
Musicians: and radio?
SoundExchange: nope, they are still screwing you
Musicians to Congress: we love SoundExchange – radio is screwing us!
NAB to Congress: you want to be reelected right?
Congress: iSIS! Mass shootings! Repeal Obamacare! Abortion! Prayer in Schools!
Musicians: is that a “no”?

* end partially accurate history lesson *

So Congress authorized the Library of Congress to determine a fair rate for playing digital music on a non-interactive basis (where the listener doesn’t choose the song). Over the air radio still pays nothing to performers. When they stream the music or create Internet only content, radio has to pay, so does Pandora and Spotify. SiriusXM has their own deal. The CRB rate only applies when the copyright holder and the music consumer can’t agree. Parties are still free to cut their own deals with each other, which may be why you notice radio stations not playing artists from some labels.

The ruling yesterday increased the fee on Pandora by about 20% – and they are happy with that. Stock markets hate uncertainty. The same rate applies to the other streamers. Currently, 44% of Pandora’s revenue goes to Soundexchange or other artist agents. Pandora has little expense other than that. Here is the math

The new rate is roughly $.20 per 100 songs played. Assuming about 20 songs an hour, that means the music is costing Pandora about $.04 an hour. The ASCAP,etc part is 2.5% of revenue ($.13 a month)

Because Pandora has a very good profile of you, advertisements can be targeting right at you. $20 per 1000 would be a typical price, meaning they get $.02 for each ad for free subscribers. Hence, the cost of the music requires about 2 ads per hour. Note this isn’t the composer / lyrics part.

Pandora has a $4.95 a month paid subscription without the ads. That means 120 hours a month (4 hours a day). If you insist on keeping it going nonstop all day, I hope you enjoy Gregorian chants and Slovic folk dances.

Most recent 10-Q

Pandora has NO debt, and about $600 million in cash or near cash.

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8 Responses to Pandora’ing “fairness”

  1. Fred Stiening says:

    Firing up Pandora, the first “song” was an almost 6 minute recording from Phantom of the Opera. This rate structure encourages Pandora to play VERRRY long songs 😉 McArthur Park anyone? Dark Side of the Moon?

    Curiously, the Andrew Lloyd Weber’s CD is the only music I have bought in the last 20 years.

  2. Fred Stiening says:

    A friend says she dropped Pandora for Amazon Prime, which offers access to over a million songs for free, for only $99 a year. Anyone else doing that?

    • CC1s121LrBGT says:

      I am doing something similar. I am dropping Costco membership for Amazon Prime. The free 2 day shipping and delivery to my door is great for just about everything I buy except the occasional ice cream. I had signed up for a free trial of Netflix during summer vacation and kept it until now. It too will be replaced by the same Amazon Prime membership.

      I did not know about the free songs until reading your post. Now I plan to terminate my daughter’s purchases on iTunes too. 😉

  3. Fred Stiening says:

    Westwood One commissioned a study to prove radio ads made Amazon Prime a success

    It’s tempting to use that Vlad Lenin quote even though it is fake

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