…from a recent interview with Pandora cofounder Tim Westergren, in an interview with Re/Code’s Walt Mossberg.
Walt Mossberg: Why are there lots of artists and labels that really don’t like you at all —
Tim Westergren: [laughing]
Mossberg: — and want to force you to negotiate deals with them, and feel like, despite the billion dollars that you pay, what they’re actually getting for each play of their song is… way below what it’s worth, and not enough to make a living on, and all the rest.
Westergren: Well I think there’s a handful of things at play, one of course the music industry is losing its primary source of revenue, the CD sale. We’re moving from a $20 item to a $1 item —
Mossberg: — but that’s not news, Tim —
Westergren: — that’s not news —
Mossberg: — that’s been going on for a while.
Westergren: — and it’s not of our creation, and it’s — but it’s continuing to create… economic, it’s undermining the industry. So it’s an emotional time, and it’s a time when the industry is looking for ways to replace that revenue. And it’s —
Mossberg: So for a while they thought they’d replaced it with iTunes.
Westergren: Right, but now that’s — that’s gone south now. So I think you start off with a sort of charged environment. And then, in terms of the royalties, it’s easy in that environment to sort of misunderstand things.
Misinformation can get easily amplified, and artists can develop a flawed notion of how these businesses run and what’s good and what’s not good for them.
I think the way to look at Pandora is, this is a company that’s building a product that consumers love, 80 million plus a month, we are working tremendously hard to build a business behind it. We’re projecting over a billion dollars in revenue next year, we have this massive ad sales force and a bunch of technology investment in it. And we’re sharing that revenue, very fairly I think with the artist community.
Mossberg: Well, but I’m asking you, why a lot of them don’t think it’s fair? You think it’s fair, I get that.
Westergren: There’s a simple reason for that —
Mossberg: — you seem like a nice fellow, and you think it’s fair
[laughter in audience]
But they don’t think you’re being fair with them.
Westergren: There’s a simple reason for that. You can write a headline that says ‘My Song Got Played This Many Times on Pandora and I Made This Much Money.’ And what it does is it fails to understand that a single play on Pandora is a play to an individual, where a play on radio is played to hundreds of thousands of people.
The actual apples-to-apples number is more like $1,300 a play on Pandora.
So that, all by itself, has created a lot of misunderstanding of the business.
Mossberg: That’s the notional apples-to-apples number. Not the actual number. What’s the actual number?
Westergren: No, no — it’s approximately, if broadcast radio paid the same royalty that we were paying, it would be in the neighborhood of about $1,300 a spin, on broadcast radio.
Mossberg: But that’s a kind of ‘if’ thing. I mean, the actual royalty they get every time their song is played on Pandora?
Westergren: It’s a fraction of a penny, per play per person.
Mossberg: Well, some people don’t think that’s fair.
Is there anything you’re going to do anything about that?
Westergren: Well I think that what will happen over time is, the royalty will be sorted out, we have multiple places to do that. And looking forward, as we develop these platforms, where artists are using this to reach fans, to harvest their audience, the benefit of this will become I think increasingly clear. And I think the debate around royalties will be put in that broader context, and I think it will make a lot of sense to people.
Mossberg: And, just quickly, because the clock’s running down… the royalty will be sorted out means what? Are you are open to raising the royalty?
Westergren: So there’s an arbitration process where this is handled. So there’s actually a hearing, dispassionate judges determine what it is, or it’s done through the direct negotiations. So there’s actually a mechanism for sorting it out.
Mossberg: [looking disappointed and unconvinced]