Why Digital Music News ‘Playa Hates’ On Pandora…

If you don’t have a problem with Tim Westergren making a million dollars a month while emailing artists to support lower royalties, then maybe you need to look at the situation differently.  This isn’t ‘playa hating,’ rather, it’s questioning why the playing field is so uneven and distorted to begin with.

Playa hating is jealousy: it means hating other people simply because they’ve accomplished more than you have.  But what if those accomplishments are coming at the expense of others?

Indeed, Westergren ‘started at the bottom’ and now he’s here: Pandora has the most listeners and listening hours of anyone online, and accounts for nearly 8 percent of all radio listening in the United States.  Those are very significant accomplishments, and to hear Westergren tell the story of when he was at ‘the bottom’ is inspirational.

But it’s now becoming obvious that Pandora’s big numbers — by design — are coming at the expense of not only profits, but artist welfare as well.

These big numbers are mainly interesting to Wall Street, investors, and few top Pandora executives who are becoming obscenely wealthy. It makes it difficult for Apple to push Pandora off the iOS deck; it squeezes out up-and-coming competitors like Slacker and iHeartRadio.  But this all seems to be creating a perverse disincentive against actually making money and creating a viable business, unless it involves markedly slashing artist royalty rates.

There are other ways to do this.  Since the beginning, Pandora has always argued that royalty rates are the problem, not their inherently flawed business model.  But a series of events over the past week are now substantially challenging that assumption, and potentially changing the discourse on Capitol Hill.  Because it may not be that Pandora can’t solve their monetary problems on their own, but rather that they don’t want to.

There’s now mounting evidence of this.  It all started when Pandora, for reasons related to royalty expenses, resumed listening caps for power users on mobile.  But instead of ditching ‘Netflix style,’ a substantial percentage of listeners actually stuck around.  It looked like this.

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Now, there’s more research confirming that forcing listeners to pay generates significant revenue.  In fact, that simple cap put Pandora at the top of this app revenue ranking (excluding games).

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So, more revenues per user means a better model, which means less need to lower royalties, right?  Not exactly: in a recent financial call, Pandora CEO Joe Kennedy indicated that ‘Pandora One’ premium tiers would be used sparingly, as a mere addition to the mainline, free service.

All of which makes it really hard not to be cynical here, especially as executives like Tim Westergren continue to curry favor with confused artists.  Because maybe a viable, workable model involves smaller listener levels but actual profitability, while maintaining artist royalty rates.  But that’s not a version that Pandora likes, or wants you to believe is possible.

And that’s why they’re getting hated on.

23 Responses

  1. Visitor

    Go Paul!
    When does DMN start an Artist Rights Conference? I bet it would be a big hit and you could start in LA. I’m sure there would be plenty of experienced and passionate people willing to participate and attend.

    This also begs the question of WHY there currently isn’t a pro-artist, artist rights conference…

  2. Farley

    Great idea. Pressure from artists can only help.

  3. someone

    Just remember this though, Pandora is one of the only music services that is paying 100% of their royalty obligation as it is all compulsive. It is the middle men that are the cause of lower royalties being paid, and the want for Pandora to lower their rates.

  4. Casey

    Pandora pays higher royalties for Pandora One users than they do for regular users. And unlike Spotify, the royalties for Pandora One users are not capped at a percentage of revenue. So Pandora risks quite a bit by giving users unlimited listening for $3 per month and they know it. But their competition doesn’t leave them with much of a choice.

  5. menlo

    The author of this article skillfully ravages a few poor unfortunate straw men. The biggest of these is that Pandora is contending that royalty rates are intriniscally high. This is not the case. Pandora is fighting for equality across all relevant channels. It is completely arbitrary that the 92% of listening share that Pandora does not command pays zero. We don’t see artists complaining about this. We also do not see artists/labels complaining about the awful monetization they get from YouTube (#1 in music streaming globally); in fact they *willingly* upload (or tolerate) their music en masse here. Why? Because there is real and material value that transfers to all stakeholders via music discovery; Pandora is arguably better and more valuable to artists in this regard than terrestrial radio given the thumbs offer more of a mertiocracy and opportunity for a broader music set to bubble to the top. Personally I think most of the artists who complain about Pandora are simply bad business people; and the labels they have signed up with are finding that they have over-milked the cash cow and have grossly miscalculated basic forces of modernity.

  6. Adam

    Paul, this is excellent. I think it was about time you explained the situation like this for everyone to see. I’ve seen a lot of people here trying to finger you as a “playa hata” but not only does the data and reality on the ground show that what you are saying is correct, its important to have a voice to be out there talking about it! I think it is disgustingly irresponsible to attempt to keep things entirely free. A nominal $10 or less per month fee is not only affordable for almost every american with internet service, but it is significantly less money than any real music fan had ever paid for access to this much music in any given month. I’ve saved hundreds through subscription service streaming every year. Literally. I can’t see anyone being able to argue against paying about $10 a month for music. You’d have to be a total jerk to really do that. Of course those people are out there, but they are not the majority. Pandora should be held accountable, they should be under extreme scrutiny, and I can’t see why anyone would disagree. Its very transparent where the money goes, thanks to Paul and others, and its very obvious who’s interests Tim Westergen has in mind – the investors, his fellow rich executives, and possibly the basic conusmer… but certainly not musicians. And he will help to destroy the income of musicians and really ruin the future of music for all if nobody calls him out. Bravo.

    • Casey

      Actually, they are not total jerks and they are the majority. A lot of people don’t want to spend half that on music. It has been devalued to that point and it’s not going to change anytime soon.
      If you want to know where Pandora’s money is going, it is very easy to follow. They lay it all out in their SEC fillings. One thing is for certain, the money is not going to the investors. Pandora does pay their employees a fair wage, but getting good employees has become extremely competitive among top web companies.

      • Dry Roasted

        “One thing is for certain, the money is not going to the investors.”
        Huh, really? I think they’re cashing out too…

  7. RF

    Ok…these kind of stories are incredibly misleading (at the least). Let’s say that (as this story states) Pandora listening accounts for 8% of all radio listening. That means that regular broadcast radio roughly accounts for the other 92%.
    Here’s the part that makes no sense…broadcast radio has NEVER paid a performance royalty…period. Never in the existence of broadcast radio! AM or FM stations do not pay performance royalities!
    So 92% of listening for large companies such as CBS, ClearChannel, Cumulus, Cox, Entercom, Greater Media, Univision, etc. who own THOUSANDS of radios stations across the United States pay ZERO performance royalties.
    How exactly are artists being cheated by Pandora who DOES pay a performance royalty on every single play?
    Maybe it’s time for artists to look at the equation a little differently …

    • Confused

      Hard to believe ASCAP, BMI, and SESAC, the “performance royalty organizatios” aren’t collecting performance royalties for radio via blanket licenses. Hell, BMI is Broadcast Music, Inc and was developed by broadcasters. That’s their BUSINESS!
      The payout is based on their calculations but I never heard anyone question it. Two of the are non-profits so they’re not swindling your money for swanky offices and telling you to “accept lower royalties” for your music.
      Yes, they don’t typically pay individually on songs except for certain usages because it’s too hard to track (ie. what some bar cover band is playing your tunes). Pandora has the ability to track ever play in their system.
      Think you need to go hide in a dark corner and not talk.

      • Clarity

        Dear Confused,
        RF’s use of “performance royalty” was perhaps a confusing short hand. Terrestrial radio does pay performance royalties on the composition to ASCAP, BMI & SESAC, but does not pay performance royalties on the sound recording. Presently, the sound recording performance royalty obligation does not extend to terrestrial radio.
        Pandora & all other noninteractive services pay for performance royalties for both the composition & the sound recording. Pandora pays ASCAP, BMI, & SESAC, as well as Sound Exchange. It pays multiples more for its listening audience then any terrestrial station.
        Paul, your article is lazy reporting & analysis. The playing field is not even. Services that pre-existed the DMCA are grandfathered in to lower rates than Pandora pays. Since when is parity not something we strive for here? Whether rates go up or down, there should be parity. And if rates go down for non interactive services, there is a strong likelihood that the overall pie gets bigger and everyone benefits. I say this as an artist who’s music is on Pandora, as well as an industry attorney. Look beyond the end of your nose.

  8. Visitor

    Oh, Tim Westergren makes $1 million per month?
    Making up stuff is fun, huh?

    • Paul Resnikoff

      You’re right. I meant $1.2 million + salary. Per Month.
      I looked it up.
      Your turn.

  9. Lavid Dowery

    Revenues are not the same as profit. You’ve been writing about this topic for years, and you still make these simple reductions that you, hopefully, know are incorrect. Why?

    • Paul Resnikoff

      “Revenues are not the same as profit. ”
      You don’t say.
      Let me simplify the argument.
      (1) Subscriber revenue is, pound for pound, better than ad-based revenue.
      (2) Paying subscribers are less numerous than free users, by a massive order or magnitude.
      (3) A winning model – ie, one that shows a profit – may include premium, paying subscribers at the sacrifice of many more free listeners.
      (4) Pandora rarely shows a profit. Overall, the company’s revenues are typically eclipsed by costs. Which means, no profit.
      (5) Which also brings us to the current lobbying on Capitol Hill, which is premised on the notion that Pandora can’t earn a profit or survive without substantial royalty breaks.

      • Manny Chien

        You left out costs include salaries. Like $750,000 a year for the CEO. If Pandora had a salary cap of $200k a year, would they be profitable overnight? Remember, Steve Jobs famously worked for $1 per year and a bunch of stock. Can Pandora exex struggle by on $200k a year in salary and $1 million a month in stock sales?

        • Casey

          Tim and many of his employees worked for no pay at all when the company was struggling at its peak.

  10. Sean Beavan

    Great reporting DMN. Musicians, engineers, producers, and songwriters need the media to not tow the corporate line. It is obscene that a guy making a million dollars a month asks the people who make the music that makes his business possible to take a pay cut when they are making pennies. finally a media outlet tells it like it is with real perspective. Truth is Pandora could actually be a profitable business where everyone involved wins even the consumer, but that model won’t make Wall Street happy and won’t make Tim and friends astronomical short term profits.

  11. Yves Villeneuve

    Don’t forget the USA is an anomaly. It is the only democracy where terrestrial radio do not pay royalties on sound recordings.
    At the moment, roughly 30% of USA population pay to own or stream a sound recording. The other 70% who consume a sound recording must pay their fair share through performance royalties, like all other countries do.

  12. Manager

    Monsieur Villeneuve makes sense. The question should not be why does Pandora pay royalties when terrestrial radio does not. It should be why does US terrestrial radio pay no royalties for the performance of sound recordings, whilst every other industrialized country in the world does?
    And because of this, US owners of sound recordings and artists do not receive payment for broadcast in other countries. Eg, in Australia, local owners of sound recordings and artists get paid every time their song is paid on terrestrial radio. The money collected is not distributed to US owners and artists, because the US do not recognize this right.
    Pandora is not paying too much. It is simple – their business model does not work. Rather than trying to squeeze their suppliers, ie labels and artists, they need to increase their income. Or, neigh a participant in a capitalist market, accept that they do not have a sustainable business.

  13. steveh

    reading discussions with Americans talking about performance royalties on terrestrial radio for sound recordings is like entering the twilight zone. What is the matter with you guys? I’ve never heard one bitty bit of convincing argument as to why America doesn’t join with the rest of the world on this. Instead of campaigning to cut artists’ legitimate performance royalties, Pandora should be campaigning for having the same royalties applied to terrestrial. That’s how you get a proper level playing field.

  14. danwriter

    A big part of this problem is context: terrestrial radio’s payment structure was established almost 80 years ago; Pandora was born into a completely different landscape, a digital one where the rules are still being made up as we go. Paul’s reporting has kept a needed counterbalance to the corporate points of view that can easily dominate the conversation, particularly ones that involve publicly traded companies.

  15. steveh

    “Pandora was born into a completely different landscape, a digital one where the rules are still being made up as we go.”
    No this is not really correct.
    Digital radios that pay performance royalties to Sound Exchange for sound recording rights are simply doing the equivalent of what ALL terrestrial radios do in ALL other developed nations.
    Apart from the United States.
    The US is an eccentric and wierd anomaly here.
    Paying performance royalties on radio music consumption is an established principle – it is NOT a rule that is “still being made up as we go”.