Indie Labels Just Handed Pandora a Huge Royalty Break

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This one is big for Pandora, really big.  So big that the New York Stock Exchange was forced to halt trading on Pandora (P) shares twice this (Monday) morning, based on extremely heavy buy volumes.  And the reason is this: according to details now confirmed by Pandora, the Register of Copyrights has agreed to consider a rate structure that mirrors independent deals hammered out between indie label consortium Merlin and Naxos, an independent classical label.

Those rates have been roundly criticized for being too low and negotiated with ‘pay-for-play’ payola sweeteners, but they also represent actual, ‘willing buyer, willing seller’ arrangements that the CRB may be willing to codify into law (the official decision happens in December).  This is a huge break for Pandora, and offers a far better financial story for investors.

Here’s the official statement on the matter from Pandora.  The complete decision of the CRB Register of Copyrights is embedded below.

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Pandora today announced that the Register of Copyrights released an opinion addressing five novel questions of substantive law referred by the Copyright Royalty Board (CRB) in the “Webcasting IV” rate-setting proceeding. On July 29th, the Copyright Royalty Judges asked the Register to offer an opinion on the admissibility of specific direct-license benchmark agreements as evidence in the CRB proceedings.

“We are pleased that the Copyright Office affirmed the admissibility of Pandora’s agreement with Merlin as a valid benchmark in the Copyright Royalty Board proceedings,” said Dave Grimaldi, Pandora spokesman.

“We look forward to the certainty that December’s decision will bring, and are prepared to thrive in a number of potential outcomes.  Our investments in the business are providing real return, including almost $1.5 billion in royalties to date.  We are excited about the future of ad-supported music streaming and the benefits it brings to consumers and music makers alike.”

In this rate proceeding, the CRB will determine the rates and terms for webcasting under a statutory license for a term of January 1, 2016 to December 31, 2020. The trial portion of “Webcasting IV” ended with closing arguments on July 21st and the CRB is expected to issue a ruling no later than December 16th.

Pandora Public Affairs
Dave Grimaldi
202-380-2203
[email protected]

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19 Responses

    • Avatar
      dcguzman

      Its good. Shocking I know. And surprised that doing what labels, artists, songwriters, publishers and distributors wants is the only solution to this so called music streaming problem.*sarcasm* Of course it is. As you can see the stocks of Pandora is increasing because of the decision, that the NY stock exchanged halted the shares of Pandora twice.

      Too much irony in the music industry. But the increase of buy rates on royalties actually profits Pandora more, not making it bankrupt. Same goes to indie labels that wants to push for higher royalty rates example in that letter Merlin. ASCAP, BMI, Soundexchange and SESAC should be demolished.

      Reply
  1. Avatar
    George Johnson

    Very bad, it would lower the current statutory rate for digital sound recording performances on non-subscription webcasting of $.0013 cents per stream (before SoundExchange gets a hold of it) to the old “Purely” streaming agreements of $.0011 cents per stream. $.00 cents lowered to $.00 cents, how cool.

    Reply
      • Avatar
        dcguzman

        Dont make a good thing a bad thing. Even this site agrees. This site. Why do you think Pandora thanks Merlin in there letter? You should read the article more thoroughly:

        “Pandora today announced that the Register of Copyrights released an opinion addressing five novel questions of substantive law referred by the Copyright Royalty Board (CRB) in the “Webcasting IV” rate-setting proceeding. On July 29th, the Copyright Royalty Judges asked the Register to offer an opinion on the admissibility of specific direct-license benchmark agreements as evidence in the CRB proceedings.”

        For the first time a record label can directly negotiate what royalties they received without the limit of terrestrial radio. Payola happened because not all songs in radio stations playlists can aired.

        Now with this decision Pandora can push any songs record label want without the fear of artists and publishers being mad. As if sponsored playlists on Spotify have no corporate team to manage the playlists.

        In a perfect world corporate sponsorship and influence isnt happening and all artists and songwriters, majors and indies have all fair share. But it wont happen in reality and its nothing more but a pipe dream.

        Reply
    • Avatar
      Anonymous

      Considering the current rates are unsustainable, what exactly do you suggest we do? Everyone wants more money but if the current rates are unsustainable, even higher rates would be…?

      And before you say let Pandora die, keep in mind Pandora is rather insignificant. Pandora could die today and someone else will fill the void tomorrow. The rates will still be unsustainable and it will only take a matter of time before they start fighting for lower rates all over again. And if internet radio dies, it’s back to terrestrial radio which pays nothing and gaining substantial support to keep it that way forever.

      Reply
  2. Avatar
    Susan Bartlett

    To clarify:

    Paul Resnikoff – “the US Copyright Royalty Board (CRB) has agreed to consider a rate structure that mirrors independent deals hammered out between indie label consortium Merlin and Naxos, and independent classical label.”

    No. The Copyright Royalty Board hasn’t “agreed to consider a rate structure that mirrors these independent deals.” We merely ensured that we can look at those deals, along with all the other evidence, when determining the appropriate rate.

    Paul Resnikoff – “Those rates have been roundly criticized for being too low and negotiated with ‘pay-for-play’ payola sweeteners, but they also represent actual, ‘willing buyer, willing seller’ arrangements that the CRB may be willing to codify into law (the official decision happens in December).”

    The Merlin and Naxos deals have only been criticized by those who want to keep the rates high and any alternate information out of the Copyright Royalty Judges’ sight. As I trust is now clear, we here at the CRB think they are an important indicator of what an actual market for these rights might look like.

    Paul Resnikoff – “The complete decision of the CRB is embedded below.”

    It is NOT “the decision of the CRB.” It is the decision of the Register of Copyrights, to questions that we at the CRB asked.

    George Johnson – “$.00 cents lowered to $.00 cents, how cool.”

    This is why none of us really listened to anything you said, George. Your lack of understanding and logic is only made worse when you deliver it with hyperbole.

    Reply
    • Paul Resnikoff
      Paul Resnikoff

      I’ll respond.

      > You:

      Paul Resnikoff – “the US Copyright Royalty Board (CRB) has agreed to consider a rate structure that mirrors independent deals hammered out between indie label consortium Merlin and Naxos, and independent classical label.”

      No. The Copyright Royalty Board hasn’t “agreed to consider a rate structure that mirrors these independent deals.” We merely ensured that we can look at those deals, along with all the other evidence, when determining the appropriate rate.

      >> There’s no difference between what I said, and what you said.

      > You:

      Paul Resnikoff – “Those rates have been roundly criticized for being too low and negotiated with ‘pay-for-play’ payola sweeteners, but they also represent actual, ‘willing buyer, willing seller’ arrangements that the CRB may be willing to codify into law (the official decision happens in December).”

      The Merlin and Naxos deals have only been criticized by those who want to keep the rates high and any alternate information out of the Copyright Royalty Judges’ sight. As I trust is now clear, we here at the CRB think they are an important indicator of what an actual market for these rights might look like.

      >> Yeah, a lot of people think the Merlin and Naxos structured rates are unfairly low, and brokered in a manner to secure priority playback, which is called ‘payola’. That’s not a niche opinion.

      > You:

      Paul Resnikoff – “The complete decision of the CRB is embedded below.”

      It is NOT “the decision of the CRB.” It is the decision of the Register of Copyrights, to questions that we at the CRB asked.

      >> Me:

      Criticism accepted.

      > You:

      George Johnson – “$.00 cents lowered to $.00 cents, how cool.”

      This is why none of us really listened to anything you said, George. Your lack of understanding and logic is only made worse when you deliver it with hyperbole.

      George is expressing extreme frustration around the rate structure. Like many artists who feel they are getting dramatically underpaid by non-interactive streaming and streaming in general.

      Reply
    • Avatar
      Susan Bartlett

      Well, Mr. Resnikoff, you’re proving yourself/this site to be the ill-informed and improperly-self-confirming knowledge vacuum that we had been warned you were.

      You responded:

      “There’s no difference between what I said, and what you said.”

      Hardly. You had said that “the US Copyright Royalty Board (CRB) has agreed to consider a rate structure that mirrors independent deals hammered out between indie label consortium Merlin and Naxos, an independent classical label.”

      We at the Copyright Royalty Board have NOT “agreed” to consider anything. We referred a question of law to the Copyright Office, to ensure that it is appropriate for us to consider certain agreements that were proffered as evidence in the proceeding. We don’t and didn’t “agree” to anything, with anyone. We sought the clear opinion of the Copyright Office that these agreements can be referred to as valid evidence. The Copyright Office confirmed that these agreements are valid evidence that we can and should consider, along with all other evidence, in making our determination.

      Further, we only sought the Copyright Office confirmation that the terms of these agreements are valid evidence, NOT any “rate structure” and certainly not one that “mirrors” these agreements. We neither “agreed” to anything, nor any particular “rate structure,” much less one that “mirrors” anything.

      So, in plain English, there is a vast difference between your explicit allegations that we have “agreed” to consider a “rate structure” that “mirrors” the direct agreements, and what has actually occurred.

      Yeah, a lot of people think the Merlin and Naxos structured rates are unfairly low, and brokered in a manner to secure priority playback, which is called ‘payola’. That’s not a niche opinion.

      We heard this characterization only from Soundexchange and Mr. Johnson. They offered absolutely NO evidence, and we heard no evidence, that this is some any type of popular opinion. Anyone with an interest in the rates could have participated in the proceeding, including Naxos and the Merlin Group, themselves. Yet they did not participate.

      George Johnson – “$.00 cents lowered to $.00 cents, how cool.”

      Paul Resnikoff – George is expressing extreme frustration around the rate structure. Like many artists who feel they are getting dramatically underpaid by non-interactive streaming and streaming in general.

      We are frustrated by the rate structure, as well. That is why we are also seeking permission to set variable rates – for both services and copyright owners. Mr. Johnson’s frustration is well known to us. That is, however, completely aside from the point made, which is that Mr. Johnson does his cause no service by couching his concerns in fictional arguments that so mis-state the circumstances or the issue at hand as to render his points invalid and useless to the trier of fact.

      Reply
      • Avatar
        Vail, CO

        Susan, put that bong down! This is totally a correct assessment of the situation. You are high! Pandora’s deals with Merlin are now being considered, that’s what this says. And yeah those deals definitely have a Pay for Play component, how could it NOT be that?

        Reply
      • Avatar
        Susan Bartlett

        Vail:

        The article goes far beyond a correct assessment of the situation. We at the CRB did not “agree” to anything, with anyone. We sought the guidance of the Copyright Office as to what evidence we could properly consider. Not any type of “agreement.” The Copyright Office has now confirmed that the agreements between Pandora and Merlin and Naxos are valid evidence that we are not prohibited from considering, along with all other evidence presented.

        The article incorrectly states that the CRJs “agreed” to consider a “rate structure” that “mirrors” the Merlin and Naxos agreements. We have done NO SUCH THING. We did not “agree” to anything, with anybody. We are not adopting or “mirroring” any “rate structure” from those agreements. The allegations that we are doing any of those things are completely false.

        As for the observation that Pandora’s agreements to “steer” listeners to certain sound recordings amounts to “payola,” or “pay for play,” this is also entirely false.

        Payola refers to improper payments (usually clandestine) for inclusion on playlists at commercial, FCC-licensed radio. Pandora is not a licensed broadcaster and is therefore not subject to federal oversight of their programming. What Pandora plays for it’s listeners is a function of several factors, including listener input and Pandora’s own programming, among other things. This is known to listeners and to the Copyright Royalty Judges and the function of developing playlists at non-interactive, non-FCC-licenced webcasters is not subject to regulation.

        Reply
      • Avatar
        Staying Consistent?

        Let’s examine some of these arguments.

        Faza (TCM)

        “That is a convenient legal loophole, but we are not in a court of law. We are having a discussion between intelligent people and we can look to the wording and intent of the statute….. Whether this is permissible under the statute (due to Pandora’s license status, or lack thereof) isn’t particularly relevant.”

        Well, actually, the ENTIRE article is about what is happening in a court of law, but you apparently missed that little detail.

        In any event, statutes only apply to who they apply to (duh) so, even in a discussion among intelligent people, outside of a court of law, it wouldn’t make much sense to say, talk about how natural-born citizens get away with not complying with immigration law requirements. They just aren’t covered by the law. The law doesn’t apply to them. Same here with Pandora. They aren’t subject to the payola laws – and they SHOULDN’T be. The payola statute explicitly not being applicable to Pandora is pretty much the ONLY thing that is relevant.

        Not only does Pandora not have any obligation to maintain open playlists, their ENTIRE business model is PRECISELY about NOT doing that. Pandora’s entire business is about COMPLETELY controlling a specific, tailored playlist. That is ALL that they do!!!! Anyone in here talking about customized internet radio as subject to “payola” has so little understanding of what is being discussed that it is laughable.

        Faza (TCM)

        “I must point out that most of the actual sellers (that is, individual rights holders) have little in the way of resources to actually participate in such proceedings directly, which is why they trust collective licensing organisations to adequately represent them.”

        It costs $150 to participate in the CRB. Any individual rights holder can participate, just as George Johnson did. Do you think it speaks more to the CRB that no other rights holders thought it was worth it to participate, than the claim that “a lot of people thought the Naxos and Merlin deals were bad”?

        And we’ll put a placeholder on the “they trust collective licensing organisations to adequately represent them,” for a moment.

        Faza (TCM)

        “The preferential treatment of the reduced rate material by webcasters (the “payola” elements) cannot be separated from the rest of the terms.”

        And neither can the Pureplay rates, or the CRB rates, or the Apple rates – or ANY rates. What is your point? That the only thing you think the CRB can look at is just a rate, without any terms, whatsoever? That doesn’t exist. Do you underestand how this works?

        Faza (TCM)

        “…the rights holders would enter into a reduced rate agreement in the absence of assurances that their material would be played more than the competition. This is all fine and dandy for one or two companies to get an edge, but cannot be really applied across the market, because it would require everyone to get played more than everyone else.”

        And that was exactly the point. Not that Pandora could steer everyone. Of course they can’t. But he lure of steering is the ONLY thing that has EVER injected actual competition into the marketplace.

        If Pandora has to license all the Sony catalog…. and can only get it from Soundexchange; and the Universal catalog… again, only available from Soundexchange; and the Warners catalog… again, exclusively from Soundexchange; and the Naxos catalog… again, only from Soundexchange; and the Merlin catalog… again, from Soundexchange…

        …how much competition is there, in that market?

        None. That is a single seller, at a single price, with absolutely no variation.

        Real competitive markets don’t work that way. What the steering agreements indicate is that owners of certain catalogs are actually willing to compete with each other on the rate – if they have a reason to. Until Pandora introduced the steering agreements, the CRB was NEVER presented with ANY evidence of an actual marketplace agreement, where owners of competing catalogs would actually compete on price.

        Of course the CRB has to consider the overall probative value of those deals, since everyone acknowledges that you can NOT steer 100% of the catalogs. Nevertheless, these deals are extremely important, because they provide the CRB with the very first agreements they have EVER seen, that were actually negotiated in this market, outside of the statutory rate-setting procedure.

        Get it?

        Faza (TCM)

        “The overwhelming majority of these people would be the small individual rights holders who have been stripped of all negotiating power in the marketplace. The combination of compulsory licensing, consent decrees and royalty rates set by the CRB means that huge corporations like Pandora or IHeart Media are able to run roughshod over the suppliers who provide their sole value proposition.”

        But, didn’t you say above that these small individual rights holders “trust collective licensing organisations to adequately represent them”?

        Clearly, you have that backwards. It is the suppliers that have banded together and intentionally created anti-competitive collectives – literal monopolies like Soundexchange – in order to run completely roughshod over webcasters and others.

        I can see that Pandora competes directly with iHeart media and Apple for listeners.

        Who does Soundexchange compete with? NO ONE.

        The truly sad thing about the whole affair is that people like you think it actually makes sense to suggest that massive, government-sanctioned monopolies like Soundexchange somehow represent individual artists, who are being taken advantage of by actual competitive businesses – which pay out 50-70% of their entire revenues (that’s TOTAL REVENUE, before profit) to those collectives. Self-interested enough to make completely illogical arguments that “huge corporations are taking advantage,” in the same breath that you suggest that the actual monopolies should not be subject to oversight.

        Reply
    • Avatar
      Faza (TCM)

      Let’s examine some of these arguments.

      As for the observation that Pandora’s agreements to “steer” listeners to certain sound recordings amounts to “payola,” or “pay for play,” this is also entirely false.

      Payola refers to improper payments (usually clandestine) for inclusion on playlists at commercial, FCC-licensed radio. Pandora is not a licensed broadcaster and is therefore not subject to federal oversight of their programming.

      That is a convenient legal loophole, but we are not in a court of law. We are having a discussion between intelligent people and we can look to the wording and intent of the statute. The satute refers to, among other things “money […] or other valuable consideration” and a reduced royalty certainly qualifies (indirectly paid – or rather: not charged – in this case). The fact that this reduction is in consideration with increased airplay should address the “for broadcast” angle adequately, I believe. It is very hard to see such deals as anything other than payola (in the informal sense), which is why they’ve been characterised as such in the artists rights community as soon as they materialised. Whether this is permissible under the statute (due to Pandora’s license status, or lack thereof) isn’t particularly relevant.

      We heard this characterization only from Soundexchange and Mr. Johnson. They offered absolutely NO evidence, and we heard no evidence, that this is some any type of popular opinion.

      Perhaps you’ve not been speaking to the right people. I must point out that most of the actual sellers (that is, individual rights holders) have little in the way of resources to actually participate in such proceedings directly, which is why they trust collective licensing organisations to adequately represent them.

      As I trust is now clear, we here at the CRB think they are an important indicator of what an actual market for these rights might look like.

      Really? The preferential treatment of the reduced rate material by webcasters (the “payola” elements) cannot be separated from the rest of the terms, I’m afraid and it would be an unjustified stretch of the imagination to presume that the rights holders would enter into a reduced rate agreement in the absence of assurances that their material would be played more than the competition. This is all fine and dandy for one or two companies to get an edge, but cannot be really applied across the market, because it would require everyone to get played more than everyone else.

      In fact, it rather does look like “a compromise motivated by the unique business, economic and political circumstances of webcasters, copyright owners, and performers”, wouldn’t you say.

      The Merlin and Naxos deals have only been criticized by those who want to keep the rates high and any alternate information out of the Copyright Royalty Judges’ sight.

      The overwhelming majority of these people would be the small individual rights holders who have been stripped of all negotiating power in the marketplace. The combination of compulsory licensing, consent decrees and royalty rates set by the CRB means that huge corporations like Pandora or IHeart Media are able to run roughshod over the suppliers who provide their sole value proposition.

      The sad thing about the whole affair is that it is so unsurprising. The trajectory we are presently discussing has been accurately predicted the moment the deals in question went down.

      Reply
      • Avatar
        Faza (TCM)

        Aside: Paul, could I entreat you to consider tweaking the style sheets so that text marked as quotes is typeset differently? Presently, using the q tag is an exercise in futility.

        Reply
  3. Avatar
    Tim Wood

    Thanks for the informative discussion. I’d like to buy all of you a beer. Or a bong hit, as the case may be.

    Reply
  4. Avatar
    Jack of All Trades

    as regards Payola:

    The Merlin agreement is nothing like payola. payola can happen at any level, between an artist and a DJ for instance. By definition payola is clandestine, which America and its courts do not like historically (see railroad kickback rates from 19th century and the oncome of Anti-Trust law). The Merlin agreement is not clandestine, since the agreement CAN be given as evidence to the CRB court members. It is merely an agreement which sets rates based on what each party can provide the other. Merlin provides a catalog of music, and that’s IT.
    Pandora offers the ability to help Merlin get its music heard, so that more people can become familar with it– also called “Discovery” which is in the BEST INTERESTS OF ARTISTS PARTICULARLY SMALL ONES.

    At the end of the day, if the major labels want to charge too much for their music to entities which provide “discovery” as a service, then they deserve to be end-arounded by smaller more nimble music lable CEOs who recognize “discovery” is a REAL and helpful skill provided to them in exchange for pre-agreed money.

    Now if you REALLY wish to see what may still be considered “payola” you’d have to delve into the many agreements between artists and a label. Labels, correct me if I’m wrong, can have an incentive to play one artist over another, based on the economics they may have with the artists in question. Now THAT would be an interesting investigation for CRB or any other governing body.

    In the end, the market works, altho collusion can gum up the works a bit. SoundExchange is basically an ATTEMPT at collusion. Should that be legal? I almost think it should. The question is, how can artists, broadcasters, and non-Soundexchange entities ‘end around’ the collusive agreement? And would that happen after a period of non-competitive time? I believe it would. I think any label NOT in SoundExchange would gain a LOT of market share from artists looking to be heard, specifically new artists wishing to topple a regime of legacy music Soundexchange could ransom it’s customers (iHeart, Pandora, owners of elevators and supermarkets, etc….).

    One thing is utterly laughable, which is any agreement which allows Soundexchange to extract a % of revenues without the agreement of the broadcaster. Either you let collusion occur, legally, or you stop this practise. Revenues for a broadcaster can vary based on the innovative nature of the broadcaster, so why should SoundExchange profit from this???

    in the end, I think Pandora can simply defer a LOT of their music to newer independent labels. This will lose customers in the near term, but over the long haul perhaps they can negotiate long-term agreements with young hungry labels which allow them BOTH to grow and prosper at the expense of a legal collusive organization like SoundExchange.

    But of course this discussion of whether collusion should be legal or not, is secondary to reality, which is the CRB can decide what they want based on their own sense of legal fairness and the historical anti-Sherman-like laws of the US.

    Reply

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