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Who’s Screwing You Worse: iTunes Radio, or Pandora?

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(iTunes Americas contract for indie labels, page 41)

iTunes Radio has been alive for less than two months, yet its active listener base is already one-third that of Pandora.  Which means, iTunes Radio will soon be just as big – and perhaps far bigger – than Pandora in a relatively short amount of time.

But is that a good thing?  Here’s a category-by-category breakdown of exactly how each service treats its precious content partners, from the largest major to the smallest indie and artist.  It all depends on where you stand.

(1) Ability of Rights Owners to Strike Independent Licensing Deals:

Pandora: In a word, impossible.

iTunes Radio: Easy for larger rights owners (like major labels); very limited for smaller rights owners.

(details: Pandora has fought aggressively against individual publishing deals; forcing publishers to fall back on lower, federally-mandated ‘consent decree’ rates (see this court decision).  Apple has gladly arranged individual licenses with both larger recording labels and publishers; unconfirmed information also suggests that Apple is striking independent deals with all publishers, but not smaller recording labels (see Apple iTunes Americas contract for indies).

(2) Presence of a released CD required for inclusion:

Pandora: Yes (and actively sold through Amazon)

iTunes Radio: What’s a CD?

(details: Pandora has held this policy for many years; Apple doesn’t sell CDs and frankly doesn’t care about them, though they do require downloads to be sold on the iTunes Store (see Apple iTunes Americas contract for indies).

(3) Presence of released download required for inclusion:

Pandora: What’s a download?

iTunes Radio: Yes

(details: according to clearly spelled-out details in Apple’s contracts to indie labels, iTunes Radio inclusion can only happen if the content is already available on the iTunes Store.  No exceptions, except perhaps for the largest major labels (see Apple iTunes Americas contract for indies).

(4) Ability to up-sell to paid downloads:

Pandora: Yes, with significant usability snags and problems

iTunes Radio: Yes, automatic with high ease-of-use

(based on DMN usability testing; October 2013)

(5) Per-stream payouts (recording):

Pandora:

$0.0012 per song in 2013 (increases $0.0001 per year; $0.0014 by 2015; with label/SoundExchange lobbying pushing to greatly increase this rate)

iTunes Radio:

Major labels (and many publishers) negotiated their own deals, reportedly with handsome advances.  Outside of that 1%, here’s the deal:

$0.0013 in Year 1 + (Monthly Company Share x 15% of Net Advertising Revenues)

$0.0014 after that + 15% of Net Advertising Revenues)

A minimum of: Monthly Company Share x 45% of Net Advertising Revenues and (a) $21.25 in Year One; $22.25 in Year Two.

(details: in the case of Pandora, this is based on federally-mandated statutory rates (more background here); Apple determines rates for larger recording owners in private, individual contracts, while indies are handed lesser terms (see Apple iTunes Americas contract for indies, which forces pre-determined payouts and terms to all but the largest rights owners.))

(6) Likelihood of Actually Getting Paid:

Pandora: Moderate chance.

iTunes Radio: Also ‘Moderate’.

(details: this is a complicated soup and depends on the exact deals and structures involved.  Pandora processes recorded music payments through SoundExchange, which forces a percentage of payouts to artists and performers.  Sounds like a welcomed change, though SoundExchange’s payout process and metadata situation is a mess and the company is notorious for holding a shockingly-large bank account of unpaid balances.  Label deals, which also fall outside of Apple’s direct purview, can also be equally unreliable.

In the case of Apple, artists have already uploaded to the iTunes Store with existing payout schemes, but label payouts are another animal entirely.  Of course, if you’re the actual label, you get the money first!)

(7) Per-stream payouts (publishing):

Pandora:

4.3% of revenues paid (pro-rata) to ASCAP, BMI and SESAC (for the year ended Jan. 31, 2013 (source)), per recent federal court decision.)

(for more details on this, see the decision of Pandora’s recent federal court victory against more expensive publishing deals).

iTunes Radio:

10% of revenues paid pro-rate to individually-negotiated, major publishers (source); this also may include independent publishers as well.

(sources: Billboard anonymous sources, Digital Music News anonymous sources)

(more details: Pandora clearly loses in this category: the company has actively battled against independently-negotiated publisher deals, on numerous fronts.  That includes federal courts and Congress.  Furthermore, Pandora is now pushing for a drastic discount on all publishing rates by purchasing a tiny South Dakota radio station (which would qualify them for far lower, terrestrial rates).)

(8) Ability to Opt-Out Entirely:

Pandora: Impossible.

iTunes Radio: Possible, but not without also removing content from the iTunes Store.

(details: federal law mandates streaming usage across recordings/publishing; publishing exclusions from ASCAP, BMI, or SESAC can be extremely difficult. Apple forces iTunes Store inclusion for all iTunes Radio participants (see Apple iTunes Americas contract for indies))

(9) Who’s More Completely Confusing?

Answer: Pandora!

A large percentage of Apple’s deals are private; then again, at least you know what you’re getting paid and you don’t have to consult with a federal judge or Senator.  With Pandora, per-play payments wind through an opaque and difficult SoundExchange payout system, while the company is constantly trying to lower rates through multiple mechanisms (court decisions, endless Congressional bills and hearings, not to mention creative loopholes).  Even Pandora founder Tim Westergren drafted letters promising increases to artists… that is, after rates were lowered (which would of course make it easier for Pandora to make more money, and pay artists more… any questions?)

(10) Usage Rules Around Your Content:

Pandora:

Up to 6 skips per hour; 12 in total per day across all stations (source: Pandora)

(note: the per-day number increases for premium, Pandora One subscribers)

iTunes Radio: Up to 6 skips per hour.

No rewinding, backward skipping or re-starting will be permitted (but resuming a paused song shall be permitted).

(source: federally-codified usage parameters; Apple iTunes Americas contract for indies).

(11) Payment Schedule:

Pandora: Quarterly, via SoundExchange.

iTunes Radio: Monthly.

(details: “SoundExchange distributes money quarterly (March, June, September, and December), per SoundExchange’s site; “Payments and the related Sales Reports shall be made monthly, per Apple iTunes Americas contract which pertains to most indies.  Oh, and when it comes to publishing/PRO payouts, you’re on your own!)

 

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Comments (27)
  1. Anonymous

    “(8) Ability to Opt-Out Entirely: [...] iTunes Radio: Possible, but not without also removing content from the iTunes Store.”

    I guess we knew the iTunes Killer would arrive sooner or later. But perhaps not from that direction.

    iTunes’ über long previews were pushing it, but this is a genuine deal breaker.


    Reply
    1. TuneHunter

      Apple is just forced by the prophets of FREE to switch religion.
      The killer is new era of “sales” inquisition – iTunes or Amazon MP3 are just walking zombies!

      Go and complain to United Church of Labels which promotes FREE, ad supported FREE and all inclusive discovery machines also for FREE – YouTube being the biggest one.
      Originator of FREE Mr. Parker and his friend Mr. Ek with monster endorsement from Facebook managed to dope the gate keepers of the music to this hopeless race to dead end tunnel!

      We have to stop it.
      We have mature discovery, streaming and iRadio services and technology on hand to effortlessly double the business in less then three years.
      Global goodwill of the music industry exceeds 100 billion dollars and we should make a plan to be there before 2020. Very easy task if we can sit down and coordinate efforts of approximately 20 existing key players.
      Long overdue profits for all!


      Reply
  2. Casey

    Pandora’s rate for Pandora One is actually higher, at $0.0022 per performance for 2013. Quite a bit higher than their free rate or Apple’s rate. Probably also part of the reason they have not been as active at promoting the service as artists would like. $3 per month doesn’t go far before they start losing money on heavy users.

    Do we actually know for sure that artists are seeing anything from iTunes radio? Or are the labels just swallowing it whole?


    Reply
    1. Anonymous

      Yep. If you got someone playing Pandora at work (8 hour work day), Pandora lose a a fuck ton of money on Pandora One. In about 2.5 hours a day (assuming 3:30 minutes per song) they break even on SoundExchange licensing. But this is ignoring all their bandwidth and engineering costs, as well as their publishing royalties (separate cost!). Pandora One doesn’t seem like a good deal for Pandora at all unless people purchase it and promptly stop using it.


      Reply
  3. MythBuster

    Myth: Likelihood of getting paid: “moderate”
    Reality: 100% chance Pandora and iTunes will each pay in full. Pandora will pay SoundExchange about $70 million for recording rights for the past three months. Apple radio will pay a tiny fraction of that, but they will pay in full. Artists registered with SoundExchange (it’s easy to do) will get paid about 46% of the $70m Pandora pays to S/E. Artists whose music was played by Apple will get paid pursuant to that Artist’s deal with his/her label. If he or she has not recouped, he or she will not see any money, just like his/her agreement says.

    Myth: Pandora keeps trying to lower rates in order to hurt artists.
    Reality: Nonsense. Pandora wants rate parity with other entities that play music the same way Pandora does (e.g. non-interactive). That means satellite and terrestrial, each of which pays a fraction of what Pandora does, or nothing at all, for right to play music. If you ask Pandora if they would agree to the current rates they pay, if Satellite and broadcast radio paid the same rate, Pandora would say “yes”.

    Myth: Pandora payment amounts are confusing.
    Reality: It’s easy to figure out what Pandora has to pay SoundExchange because the numbers are public. It’s easy to figure out how much S/E pays out to artists because those numbers are public too. Apple doesn’t make it’s numbers public, and likely never will. You can always call your label and ask them for Apple’s numbers.


    Reply
    1. David

      Pandora is not an ‘ordinary’ (broadcast) radio station. It is not even accurate to say Pandora is ‘non-interactive’. Does an ordinary radio station let you specify an artist you want to listen to? And play tracks chosen according to your own pattern of preferences? And where you can skip tracks you don’t like, which in turn influences the station’s future choices? What is this if not ‘interactive’? Pandora is only categorised as non-interactive because it is not an on-demand streaming service like Spotify. In functionality it is somewhere in between ordinary radio and on-demand streaming, and its royalty payments should also be (and are) intermediate between the two.


      Reply
      1. Joey Flores (earbits.com)

        Most times I go to Pandora and tell them I want Led Zeppelin, I do not get Led Zeppelin right away. On the contrary, Sirius has an all-the-time Grateful Dead station. Do they have to pay more for that? No. Pandora pays more than almost all of their competitors. iHeartRadio pays less because Clear Channel owns FM radio stations. Why does that matter? All we’re talking about here is leveling the playing field. If you want to complain about somebody, complain about the people paying massively discounted rates – not the one company paying the most.


        Reply
        1. Inside

          @Joey, you’re incorrect about some of your assertions if not on your overall theme. iHeart Radio does pay a higher stat rate than Pandora. Pandora pays what is called a “Pureplay” rate which was negotiated to a discount with SoundExchange in 2009 whereas iHeart pays the higher per play rate set by the CRB for “simulcasters” and webcasters that are part of other revenue generating businesses. It is true that Clear Channel has struck direct licenses with a number of labels, most notably Warner where it has been reported that in exchange for giving those labels a terrestrial royalty they’ve secured a discounted iHeart rate that brings their digital rate for those labels to something just below what Pandora pays. As for Sirius’ artist branded stations, my understanding is that they strike specific licenses with the labels (and perhaps artists) for those stations. In some cases I’ve heard they pay a lower royalty and for some I’ve heard they pay more.

          Those corrections aside, there is some merit to your point (and Pandora’s point) that they are unfairly paying a much larger percentage of their revenue than FM radio ($0) and Sirius (escalating from 9% to 11% of certain revenues over the next few years). It’s muddy, however, because music is 100% of Pandora’s product offering whereas Sirius, for instance, can argue that much of their revenue is generated by subscribers interested in Howard Stern or the NFL or Nascar, etc.


          Reply
        2. Anonymous

          iHeartradio should actually be paying more than Pandora, because Clear Channel is not an internet radio pureplay and therefore would not qualify for the lower pureplay licensing rates.


          Reply
          1. TuneHunter

            Dave’s highlight of Pandora’s features transferred them in my mind to Spotify and YouTube plunder group.

            Subscription should go from $3 to $30 to just partly compensate for discovery machine they provide.

            This discovery engine with side jump to YouTube makes you an owner of customized for you “cream of the cream” $3 provides one of the best fuzzy logic music harvesters! Great listening with option to steal.

            Still they can limit the display info and become a digital music store – happiness for all.


            Reply
  4. Anonymous

    SoundExchange pays 45% of all revenue DIRECTLY TO ARTISTS. It doesn’t matter if the artist isn’t a copyright holder on the song, and it is regardless of advance or label contract!

    Apple paying the labels instead of SoundExchange means that the vast majority of artists will never see a penny. You can bet on that.


    Reply
    1. Yves Villeneuve

      I think Apple is legally mandated to pay the artists’ share(45%) through SoundExchange.


      Reply
      1. Inside

        Nope. Apple did direct licenses with labels & distributors. Artist royalties will be determined by their label contracts and how the label decides to handle payment. There is no service “legally mandated” to pay artists thru SoundExchange. SoundExchange is set up to collect & pay royalties from services that qualify for the U.S. compulsory right to stream music (non-interactive, digital, satellite or cable and compliant with certain performance compliments associated with maximum number of skips per hour/day and number of songs performed by one artist in a certain time period). Services that aren’t qualified for the U.S. compulsory license or that choose not to use the compulsory license can strike direct licenses with labels. Pandora could do this (they say they don’t want to). Sirius has tried this (they didn’t get very far). iHeart/Clear Channel has done it.

        There is no question in my mind that performing artists and indie labels are much more likely to be “screwed” by iTunes Radio than Pandora. It’s the opposite for songwriters based upon what Paul’s reported here.


        Reply
        1. Yves Villeneuve

          Labels can’t hijack SoundExchange artist payouts.


          Reply
        2. Yves Villeneuve

          Apple has direct deals with labels (“COMPANY”), not with artists. SoundExchange recognizes Labels and Artists as distinct from the other.


          Reply
          1. Inside

            Yves, your statement that Apple has direct deals with Labels, not with artists isn’t relevant except in those cases where artists are releasing their own music. Apple’s deals with labels are for the exploitation rights associated with the master and 100% of master royalties will be paid to labels (with labels being responsible for accounting to artists, subject to contracts and recoupment). Read this good item from Future Of Music called “How Does iTunes Radio Pay Artists” – http://futureofmusic.org/blog/2013/10/17/how-does-itunes-radio-pay-artists – that explains it well. Many, many artists may never see 1 penny of revenue from iTunes Radio. It’s entirely up to labels.


            Reply
            1. Yves Villeneuve

              You’re obviously clueless. You’re not on the inside of anything. Nothing in the link you provided contradicts what I’m saying.

              Total iTunes Radio stream payout is roughly 0.0025, Pandora slightly less. Labels directly receive 0.0013 while artists receive roughly the remainder through SoundExchange. Both major label and unsigned/indie artists have to sign up to a SoundExchange account to directly receive royalties from it. Major labels have their own sign up process for SoundExchange account. An Unsigned Artist can claim both the label and artist payouts.


              Reply
              1. Inside

                Anyone reading Yves’ comments here and not bothering to read the Future of Music item I linked to (and seeing for themselves that there is zero reference to artists being able to claim ANYTHING from iTunes Radio via SoundExchange and seeing that the $0.0013 that Yves references is actually a royalty rate offered to indie LABELS) is allowing themselves to be misinformed.


                Reply
                1. Yves Villeneuve

                  It’s a blog about iTunes making direct deals with labels. It avoids the artist payout formulae in its discussion.

                  Artists(45%) and session musicians(5%) are paid separately through SoundExchange. Same as Pandora’s arrangement, as mandated by laws.

                  Yes, major labels receive additional ad revenues while I’m unsure for indie labels and unsigned artists… I assume they don’t but don’t take my word for it.

                  Take care.


                  Reply
                  1. Anonymous

                    iTunes radio does not pay sound exchange. End of story.


                    Reply
  5. Anonymous

    I’m pretty sure the “skip limit” doesn’t come from the license. It’s because Pandora pays the full license cost of a song, even if it is skipped. Thus they have some interest in keeping the skips under control.


    Reply
  6. Anonymous

    The first sentence in this article is not true. Pandora has over 70 million ACTIVE users. iTunes Radio claims to have over 20 million people who have used the service. These are different metrics and you can’t say that iTunes radio has reached one third of Pandora’s active listener base.


    Reply
    1. Paul Maloney

      “iTunes Radio has been alive for less than two months, yet its active listener base is already one-third that of Pandora. Which means, iTunes Radio will soon be just as big – and perhaps far bigger – than Pandora in a relatively short amount of time.”

      An unlikely prediction based on a false premise.


      Reply
  7. Radio and Records Vet

    and we wonder why we’re all confused.

    Did you guys know that a non-comm that streams can’t do a Grateful Dead hour?

    Did you guys know that the royalty structure is not the same for one and all?

    Cmon guys, I bet if we put our collective minds to this problem we could actually actually write legislation that would balance this all out – and make more sense, and be less cumbersome than what we have now. Any lawyers in the house?


    Reply
  8. chosenlovemusic

    J. Cole isn’t the only raw talent coming out of North Craolina. Check out unsigned, solo artist Chosen Love (formally known as Young D). http://m.youtube.com/watch?v=WvNdYDekWPw


    Reply
  9. Question

    How do both of these compare to Slacker Radio, and their much larger music collection?


    Reply
    1. Casey

      That’s a question I doubt you will find an answer to as it is rather complicated. My understanding (which may not be totally accurate) is that Slacker uses Sound Exchange to pay for their free service royalties, and the higher sound exchange subscription rate for their radio subscriptions when applicable. On-demand and radio caching uses direct deals, presumably at a higher rate than either iTunes or Sound Exchange royalties.


      Reply

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