The US Government Is About to Destroy Pandora’s Business Model…

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The US Department of Justice has now tentatively approved a plan that would allow publishers to directly negotiate their catalogs for digital usage, including online radio (ie, ‘non-interactive streaming’).  According to details emerging this morning from Billboard, the DOJ is highly likely to approve a new system would replace 1940s government ‘consent decrees’ that pre-fix the royalty rates paid by streaming music companies.

That includes Pandora, which has so far enjoyed a low, per-play statutory rate to publishers and has ardently protested and lobbied against direct licensing.  If the DOJ’s recommendations pass, expect every major publisher to immediately start demanding more money, and/or pulling their catalogs.

Major publishers have been trying to get this done for years, especially given the meteoric rise of Pandora.  As part of the consent decrees and recent court decisions, publishers are forbidden from selectively removing their catalogs from performance rights organizations (PROs) ASCAP and BMI, who administer performance rights across all platforms.  With the change, publishers can now strike separate deals, and receive a far higher ‘penny rate’ from digital services, including digital streaming services.

This change would have an immediate and dramatic impact on Pandora, a company that remains unprofitable, saddled with massive royalty expenses, and unhealthy on Wall Street.  Under the new plan, major publishers are almost guaranteed to (a) force Pandora to pay dramatically higher rates on their catalogs, or (b) remove their catalogs if they don’t receive those rates.

More as it develops.

 

 

33 Responses

  1. Avatar
    Izzy

    Pandora destroyed Pandora’s business model when they started the company

    • Avatar
      Remi Swierczek

      Political power of music industry is used for government induced harvesting of peanuts in royalties!

      ASK government to give you new fair use act outlawing Shazam, Google, Soundhound and lyric ID services.

      They serve to over 2 billion music looters.
      Just convert them to cash registers of Radio and streaming music store.
      Pandora within one year will bring $5 billions in music sales!
      FIGHT FOR THIS PIGGY BANK NOT FOR PENUTS collected on dead industry!

      • Avatar
        Remi Swierczek

        Don’t mind me. I post this unintelligible nonsense in every thread I see.

          • Avatar
            Genuine R.D. Swierczek

            Only devoted NUTS change the world!
            Music desperately needs help!

      • Avatar
        glenn

        Wow. I’m sure your really saying something profound there. Unfortunately, you write so cleverly and cryptically that only you and a few other would-be hipsters understand what you are trying to say. Guess it’s better to be cool than to be understood.

        • Avatar
          Remi Swierczek

          Glenn, There is nothing profound in my comments! Solution to have profitable music industry is primitive lake the fact that we are breeding the air.
          Nobody knows or thinks that they are actually doing that. (breeding the air)

          We have all music air we need!
          Just convert Radio and streaming to music store.
          All you need is to limit info on display and hire broke and stupefied Shazam as a cash register!

  2. Avatar
    jw

    >> That includes Pandora, which has so far enjoyed a
    >> low, per-play statutory rate to publishers and has
    >> ardently protested and lobbied against direct licensing.

    Low relative to what? (Don’t worry, Paul, I don’t expect you to actually qualify that. We all know that there’s no math behind that statement.)

    All this is going to do is screw indie artists. Pandora isn’t going to magically make more revenue to suit publishers. That’s not how things work. This isn’t really even about Pandora, this is about publishers fighting against the democratization of the industry. Before, the industry used gatekeepers/access to funnel all of the money to a handful of major stars (and through the major publishers). The internet destroyed that. So now the major publishers will use their might to negotiate huge sums for themselves & their elite songwriters, leaving scraps for everyone else. If Pandora changed the game where the plays are no longer going through the publishers, they can still rig it so all of the real money still goes through them. This is about publishers fighting to be relevant. And it’s not good for the average artist/songwriter, & it’s not good for the consumer.

    We all know that Pandora’s per play payout is very generous. It’s the total sum payouts that the publishers have a problem with… this is because of the variety of music that Pandora plays, much of which isn’t funneled through the publishers. This, however, is what consumers are demanding, & is the secret behind Pandora’s “meteoric rise.” It should go without saying that, if you’re a songwriter, unless you’re on a publisher’s roster, they could’ve give two shits about you. Unless you’re on a publisher’s roster, you’re just a mark. And it’s sad to see that so many songwriters have been promised higher rates by the PROs, but will be getting shafted through this redistribution.

    Whoever was arguing on behalf of independent songwriters here REALLY dropped the ball.

    • Avatar
      David Lowery

      Hi JW. I’m David Lowery. Who are you? Who do you work for? Perhaps there is nothing unseemly or sinister here? Perhaps you are an independently wealthy individual who has just decided that instead of volunteering to help the needy in some impoverished country, instead you would devote your life to defending Pandora and other streaming services in the comment section of Digital Music News?

      In the meantime can you explain how this is supposed to hurt indie artists? You’re always quick with that one.

      • Avatar
        David Lowery

        For those of you new here. JW is constantly commenting here.

        • Avatar
          jw

          Professor Lowery,

          Flattery will get you nowhere.

          The reality is that there’s a fixed pool of revenue from which Pandora can pay out, based on whatever is generated by advertising & premium subscriptions. It’s my understanding that Pandora pays out in the neighborhood of 70% of revenue to licensing. Based on Pandora’s operating size, & the fact that they aren’t profitable, it seems safe to assume that Pandora will not be able to stretch much past 70% to accommodate paying higher royalties negotiated by publishers. At least not without impacting the quality of the product or the current growth rate.

          So what does that leave? Redistribution of the payouts. In order to give more to the major publishers, it has to come out of someone else’s pocket. This could come out of the pocket of the artist, but more than likely the publishing payout pool will remain the same size, it will just be redistributed towards the top, based on negotiating leverage. This implies that redistribution will come from the bottom, & that’s the indie songwriters who lack the negotiating leverage. This should just be taken for granted… any time negotiations come into play, those with the leverage will fare better, & those without it will fare worse. This is creating an environment where songwriters are dependent on publishers to get better rates for non-interactive streaming, rather than the level playing field that we have now, which I think is the best system.

          Alternatively, I suppose Pandora could play fewer songs & more ads, &/or raise subscription prices, but neither of those would be wise in the longterm.

          We’ve seen this before… major labels pounce on Spotify & extract a king’s ransom, leaving the scraps for indie artists. I don’t have any reason to believe this exact same scenario won’t play out.

          I’ve said this before… we all want to be paid more. We all feel like we deserve more. But that money has to come from somewhere. It doesn’t just appear out of thin air because you demand it. All figures are part of an equation that must ultimately balance out.

          Then again, maybe you have some insight that I don’t. But if not from the pockets of independent songwriters (those without negotiating leverage… the flip side of the very coin we’re discussing here), then where is this extra revenue going to come from? From the artists’ royalties?

          • Avatar
            david lowery

            I actually agree with you on some/most of this. I just wanted to make you spend half an hour writing a response. So just in case you are sponsored by a major music tech company, and not that independently wealthy digital music enthusiast, i got to “run the meter” a little bit on the corporate dime 🙂

            actually that’s supposed to be funny and friendly but it isn’t a joke.

            I do think the way this is shaping up it will help the biggest publishers and not the independents. I mean who is gonna negotiate with Camper Van Beethoven Music Co? We could maybe still pull an “Opt Out” and just opt for sales. But you know I am not totally against streaming services, or webcasters, I really just want more flexibility for what appears where.

          • Avatar
            jw

            This response seems very petty of you, professor. For the record, I am neither independently wealthy nor am I sponsored by anyone. But if someone wants to pay me to share my views on how I think the industry could be made better for everyone or on the missteps I believe the industry is taking, I would be willing to consider any such offer.

            I just don’t want to hear you complaining when cash starts flowing out of your pockets & into Desmond Child’s. And you had a semi-hit song two decades ago… what of the indie songwriters who haven’t even proven themselves yet?

          • Avatar
            Anonymous

            If you are all shills, please help a brotha out. I will gladly accept a position as a paid shill for Pandora, Google, David Lowery/Cracker, or whoever.

          • Avatar
            jw

            I think Professor Lowery is creating his own shills @ UGA. And THEY’RE paying HIM for the privilege.

            So good luck getting any cash out of him.

  3. Avatar
    KS2 Problema

    “The US Government Is About to Destroy Pandora’s Business Model…”

    Really?

    From the actual article this blog post is based on:

    “All of the proposed changes would have to be approved by the BMI and ASCAP judges, meaning the changes are far from a done deal.”

    Once again, we find that if you want the factsgo to the source.

  4. Avatar
    Victor Trejo

    Any links or resources the original statements by the DoJ?

  5. Avatar
    Anonymous

    “The US Government Is About to Destroy Pandora’s Business Model”

    Please let that be true.

    “The US Department of Justice has now tentatively approved a plan that would allow publishers to directly negotiate their catalogs for digital usage, including online radio”

    Should go for terrestrial, too.

  6. Avatar
    Anonymous

    “Next on the list is going to be a serious effort to limit piracy”

    Couldn’t agree more. And after that, we need to look at terrestrial radio as well.

    But this would be a huge step in the right direction.

  7. Avatar
    Anonymous

    EVERYONE SAY BYE BYE TO PANDORA!!! BYE BYE!!!!

  8. Avatar
    Anonymous

    Nobody cares. People will just go back to dank memes.

  9. Avatar
    MusicianWhoUnderstands

    Aaaaaaannnnnnd, our venerable editor here at DMN is once again busy proving he knows almost nothing about the business. Let’s see:

    Paul Resnicoff

    “approve a new system would replace 1940s government ‘consent decrees’ that pre-fix the royalty rates paid by streaming music companies.”

    1) The DOJ is NOT “replacing” the consent decrees or suggesting a replacement of that system. The DOJ is considering modifying the existing consent decrees, as they have, several times in the past.

    2) The consent decrees do not – in ANY WAY – “pre-fix” the royalties to be paid for performances of musical works. Indeed, the rated court established under the consent decrees is the very last step, only after negotiations have not resulted in a rate agreement. The rate court has benn invoked in only a small percentage of the licensing proceedings with ASCAP and BMI.

    Paul Resnicoff

    “That includes Pandora, which has so far enjoyed a low, per-play statutory rate to publishers and has ardently protested and lobbied against direct licensing.”

    1) Pandora does NOT pay a ”per-play” rate. They pay on a percentage of revenue, NEVER for actual plays (otherwise, ASCAP and BMI would have a much more difficult time screwing their affiliated artists).

    2) The royalty Pandora pays is NOT “statutory.”

    3) Pandora has not ardently protested direct licensing. In fact, they have entered into
    direct licensing deals when no one else would. To be clear, what Pandora has lobbied for is a transparent licensing marketplace, whether that is direct or through the PROs – something we don’t have.

    Paul Resnicoff

    “With the change, publishers can now strike separate deals, and receive a far higher ‘penny rate’ from digital services, including digital streaming services.”

    Publishers don’t receive a ”penny rate” for performances – and thus far, have not sought one. Again, they are paid on a percentage of revenue.

    Can you get at leat ONE fact, right??

    EVER????

    • Avatar
      TY

      Wow. That makes a lot more sense. Thank you MusicianWhoUnderstands.

    • Avatar
      KS2 Problema

      Thanks for the corrective info, MusicianWhoUnderstands!

      I wish you were here all the time to straighten out the reportage and debunk the nonsense!

    • Avatar
      Tcooke

      Pandora lobbying for transparency? I thought they might be lobbying to keep their rates low?

      • Avatar
        MusicianWhoUnderstands

        And your thinking would be incorrect.

        Pandora of course wants to keep their royalty obligations low, that shouldn’t be a surprise to anyone.

        But they don’t – and can’t – do that by lobbying. Congress doesn’t set Pandora’s royalty rates.

        Like our esteemed editor Paul, you would do well to actually learn a bit about how this all really works, before announcing your misguided opinions on it.

        ….just sayin’….

  10. Avatar
    FarePlay

    “The US Government Is About to Destroy Pandora’s Business Model”

    I bet Chris Harrison sent this post to the DOJ the instant he saw it.

    ‘Careful with that axe Eugene’

  11. Avatar
    Anonymous

    SHUT DOWN PANDORA, SPOTIFY, BEATS, YOUTUBE, AND THE REST OF THE “DIGITAL” ILK!!!!!!!!!

  12. Avatar
    Versus

    Good. That was never a Pandora business model. It was based on devaluing music.