Pandora Media is locked in a no-holds-barred fight for profitability. The commotion is affecting a large contingent of stakeholders—songwriters, music publishers, performance rights organizations, terrestrial and satellite broadcasters, pundits that square off in music and tech business websites like Digital Music News and TechDirt, and the United States Congress.
Planted on one side are Pandora, the largest Internet radio company, and, advocates of webcasting. This party claims that the royalty rates paid to artists and intermediaries, such as music publishers, are too high, and, if not lowered, could drive the company into the ground—casting a dark shadow over the future of internet radio.1 They are also upset about the disparity between their rates and those paid by terrestrial and satellite radio companies for the right to broadcast music.
On the other side stand the copyright holders who rely on the exploitation of their intellectual property to generate revenue. This includes artists, songwriters, publishers, and record labels. In addition to copyright holders, there are performance rights organizations, such as ASCAP, BMI, and SoundExchange, whose job it is negotiate and collect royalties on behalf of the rights holders from companies like Pandora. These stakeholders don’t want to see a reduction in royalty rates, as the result would be less revenue for them. They claim Pandora’s losses are due to a flawed business model and that they should not suffer for it.
Pandora makes its money by selling advertisements that are heard by its listeners. Additionally, 4% of its users pay $0.99 per month for access to unlimited monthly listening.2 Despite the fact that revenues have doubled each year since 2011, peaking at $427.1 million in FY 2013, the company continues to lose money. Their income statement for 2013 shows net losses of $38.2m, up from $16.22m in 2012 and 1.7m in 2011.3 Pandora’s cost of doing business is spread across four key areas: content acquisition, product development, sales and marketing, and general/administrative expenses. According to Pandora’s audited 2013 financial statements, 60.6% of their revenue ($258.7m) was paid out to copyright holders—the owners of the recordings and compositions that the company webcasts.4
Tim Westergren, Pandora’s founder and chief strategy officer, is concerned about the direction his company’s royalty rates are headed. He wrote the following in February: “Pandora’s per-track royalty rates have increased more than 25% over the last 3 years, including 9% in 2013 alone and are scheduled to increase an additional 16% over the next two years.” Regardless of the rate increase, Pandora’s content acquisition costs grow lock-in-step with its listenership. The more people listen, the more it has to pay.
The company is employing two strategies to address this problem. First, Pandora is trying to raise the value of each stream by selling more advertising spots per unit of music streamed. It recently teamed up with two media-buying platforms, Strata and MediaOcean, to allow advertisers to compare its audience data next to that of terrestrial radio stations.5 Pandora already has 29 sales offices in major radio markets and is planning to expand.6
The second is an attempt to reduce statutory royalty rates for internet radio webcasters by way of a lobbying campaign aimed at congress and public opinion, which has resulted in the introduction of the Internet Radio Fairness Act (IRFA). One of IRFA’s sponsors, Sen. Ron Wyden, claims the bill “requires that the Copyright Board… use the same standards to set royalties for internet radio that they use for satellite and cable radio.”7 However, the standards that the board uses are murky, which substantially complicates the task.8 Mr. Westergren is asking listeners and musicians to support the IRFA, citing the disparity between the rates Pandora pays and those paid by terrestrial and satellite broadcasters. He and Sen. Wyden may have a point.
According to a statement released by another IRFA sponsor, Sen. Jason Chaffetz, satellite and cable radio stations pay between 7 and 16% of their gross revenue in royalties.9 Terrestrial broadcasters pay far less—Clear Channel’s content acquisition costs equal 1.7% of their gross revenue, because, unlike internet and satellite transmitters, terrestrial broadcasters have historically been exempt from paying the owner of the sound recording. Unfortunately for Pandora, their direct competitor, iHeartRadio, a Clear Channel-owned internet webcaster, also pays the 1.7% rate. This prompted Pandora to recently purchase a broadcast radio station in South Dakota—an attempt to secure lower rates by reclassifying itself as a terrestrial company. BMI quickly responded with a lawsuit.10
ACPU, ARPU, and Sirius XM
Many commentators and stakeholders have shared pointed exchanges about the difficulty of comparing internet radio to satellite and terrestrial formats, as well as the vagaries in using streams and impressions for determining fair royalty payments.11 Perhaps better metrics for weighing the validity of Pandora’s complaints about high content acquisition costs are Average Cost Per User (ACPU) and Average Revenue Per User (ARPU).
ACPU is calculated by dividing a company’s annual Cost of Goods Sold by the number of users it has. Pandora reached 200 million users in Q1 of 2013, however the company’s annual report states that only 65 million of those users are active. Given that its content acquisition cost for FY 2013 was $258.1m, dividing by 65m active users gives Pandora an ACPU of $3.97. Meanwhile, Sirius XM spent $830m on content, has 22.8m users, and an ACPU of $36.40!12 Pandora has 42.2 million more users than Sirius, yet pays artists $32.43 less per user. This demonstrates that Pandora’s rates are not as unfair as the company claims. It also suggests that Pandora may be doing a poor job of monetizing its users. Let’s take a look at revenue generated on a per-user basis to determine if this is true.
ARPU is calculated using a slight variation of the above formula—replacing COGS with revenue. Pandora’s ARPU is $6.57. Sirius XM’s is $149.21, given their annual revenue of $3.4 billion. This confirms that there is an issue with Pandora’s business model, and, that the company’s losses have very little to do with the amount it pays for content. Sirius grosses $142.64 more per user than Pandora. What are they doing differently?
Sirius charges customers a flexible monthly fee depending on whether a user desires access in their car, wants to listen online only, is a business, or prefers a greater variety of channels and content types (i.e. comedy and sports). Pandora believes that only 20% of listeners pay for music, and that the greater opportunity lies in the 80% who do not.13 Pandora’s mission is to capture the non-paying listeners and then monetize them by increasing the amount of advertising they must hear in between songs. However, the soon to be launched iTunes Radio will be competing with them for this market, and are offering artists better deals. Thus, artists must ask themselves if they are willing to subsidize Pandora’s chosen strategy. Apparently, many are not.
Opposites Unite
Artists, publishers, record labels, and the PROs are furious with Pandora and the Internet Radio Fairness Act (IRFA). After experiencing devastating losses from the devaluation of recorded music over the last decade, these stakeholders are not happy about taking any more pay cuts. In December 2012, Rihanna, Billy Joel, Katy Perry, and over 100 other artists signed an open letter in opposition to the IRFA.14 This helped prevent Congress from coming to a vote on the bill. However, the IRFA is far from dead.
In May, many Pandora artists received a letter from Mr. Westergren, encouraging them to sign a letter of support for rate parity across all platforms.15 Mr. Westergren, who positions himself and his company as a champion of artists, claims that Pandora helps many thousands of independent musicians reach listeners who would never otherwise hear their music, i.e. the platform is a promotional tool. The IRFA, he believes, will help ensure a prosperous future for internet radio and preserve the newly-leveled playing field Pandora has helped create.
This has resulted in another industry-wide backlash. Roger Waters and other members of Pink Floyd blasted Pandora in an op-ed, published by USA Today, for attempting to trick artists into supporting the act. “Widespread artist opposition stopped them last year, so this year Pandora is trying to enlist artists support for their next attempt at passing this unfair legislation,” Pink Floyd wrote. The article continues, “a musician could read this ‘letter of support’ a dozen times and hold it up to a funhouse mirror for good measure without realizing she was signing a call to cut her own royalties to pad Pandora’s bottom line.” Meanwhile, Some songwriters feel that the existing rates are already too low.
Musician and artist rights advocate, David Lowery, kicked up a storm by posting an article on his blog, The Trichordist, stating that his band Cracker received a $42 check covering publishing royalties for 1.16 million Pandora plays of their “Low”.16 This amount did not include his sound recording royalty, which was significantly more, however, it does illustrate the paltry payouts songwriters receive. In response, a company spokesperson told the Huffington Post, “Mr. Lowery misrepresents and grossly understates Pandora’s payments to songwriters.” Pandora in fact paid about $93 for their performances of Low. The difference between the amount Pandora paid and Cracker received likely went to BMI and the song’s publisher.
The Recording Industry Association of America, MusicFIRST, and the PROs assume the position that Pandora is a maturing publicly traded company and is not entitled to special treatment that would help their apparently flawed business model. They fear artists stand to lose 85% of their current revenue from internet webcasters should the IRFA become law. Presumably, the 85% statistic comes from the disparity between the 55% of gross revenue Pandora paid copyright holders in FY 2012 and the 8% paid by satellite broadcaster Sirius XM. Pandora claims the statistic is not indicative of their goal.
Nevertheless the RIAA and MusicFIRST are backing another piece of legislation—The Interim Fairness in Radio Starting Today Act.17 The bill, introduced by Congressman Jerrold Nadler, would require terrestrial broadcasters to pay performance royalties to sound recording (SR) copyright holders, effectively closing the rate disparity across formats in the opposite direction. The Future of Music Coalition reported that Maria Pallente, Register of Copyrights, “called the lack of a public performance right for over-the air (AM/FM) broadcasts “indefensible,’” at a testimony before a House subcommittee on Copyright Act updates.
A High Stakes Test
Of course, Pandora would prefer to see internet webcasting rates go down, rather than watch other formats pay more (though Mr. Westergren has stated that he believes terrestrial broadcasts should have to pay a performance royalty to SR copyright holders). The National Association of Broadcasters and Clear Channel also support the IRFA—they would have to pay more under the competing bill.18
Presumably, Pandora’s management is aware of the disparity between their company and Sirius XM’s ACPU and ARPU, and the unflattering light it casts on their current position. It suggests Mr. Westergren and Pandora are indeed manipulating public opinion, not to benefit artists at all, but rather to establish a lower royalty rate before it attempts to substantially increase its revenue. The company has been investing heavily in growth and user acquisition, which should soon become visible in the company’s financial statements. The strategy of reducing variable costs is completely understandable, as management has a fiduciary duty to the owners to maximize profits. However, Mr. Westergren’s attempt to mislead artists for the benefit of shareholders is unethical.
Speaking about the current royalty rates, Pandora’s chief financial officer, Mike Herring, revealed, “the rates that (Pandora) pay(s) are statutory rates that are fixed, they are set in stone through 2015. Based on those rates, we are confident we can build a really good company…It’s all about monetization.”19 Furthermore, the company has announced a change in leadership. Mr. Herring stated that departing CEO Joe Kennedy “recognizes that Pandora is at an inflection point from a business model perspective.”20
Essentially, this means that change is in the air and anything is possible. Pandora could become a paid service, or, end up generating ten times its current advertising revenue over the next five years. Should Pandora-supported IRFA ideology end up reshaping the fundamentals of royalty computation in the new media environment by lowering statutory rates, this could easily become yet another misery scenario for artists and rights holders.
By Miguel de Braganca
Endnotes
1. Robertson, Michael. “Sadly, Pandora Is Still Going Bankrupt.” Web. 19 July 2013. <http://www.michaelrobertson.com/archive.php?minute_id=298>.
2. Westergren, Tim. “A Note to Our Listeners.” Pandora Blog. N.p., n.d. Web. 19 July 2013. <http://blog.pandora.com/2013/02/27/a-note-to-our-listeners/>.
3. “Annual Financials for Pandora Media Inc.” Marketwatch. N.p., n.d. Web. 19 July 2013. <http://www.marketwatch.com/investing/stock/p/financials>.
4. Pandora’s Q1FY14 Detailed Historical Financial Report
5. Walsh, Mark. “Pandora Teams With Strata, Mediaocean To Simplify Ad-Buying.” MediaPost Publications 03/05/2013. N.p., n.d. Web. 19 July 2013. <http://www.mediapost.com/publications/article/194937/pandora-teams-with-strata-mediaocean-to-simplify.html>.
6. Farrell, Michael B. “Pandora Competing in Local Radio Ad Market.” BostonGlobe.com. The Boston Globe, n.d. Web. 19 July 2013. <http://www.bostonglobe.com/business/2013/07/08/pandora-competes-for-piece-local-market/4FoY52oltBmgt61DjaH6tN/story.html>.
7. Sen. Wyden, The Internet Radio Fairness Act of 2012
8. “Rising Tides.” Future of Music Coalition. N.p., n.d. Web. 19 July 2013. <http://futureofmusic.org/issues/campaigns/rising-tides>.
9. http://thehill.com/blogs/hillicon-valley/technology/251037-lawmakers-introduce-pandora-backed-music-royalty-legislation#ixzz2Ys5dTkXf
10. http://www.billboard.com/biz/articles/news/radio/1566479/pandora-buys-terrestrial-radio-station-in-south-dakota-aims-for
11. http://www.digitalmusicnews.com/permalink/2012/121120pandora39
12. http://files.shareholder.com/downloads/SIRI/2588035120x0x652466/4D4285DE-D78E-4458-8F42-B10F67CB4795/SiriusXM_2012_Annual_Report.pdf
13. http://www.billboard.com/biz/articles/news/digital-and-mobile/1553823/pandora-cfo-predicts-better-scaled-royalty-payments
14. http://www.huffingtonpost.com/2012/12/04/pandora-artist-royalties_n_2239458.html
15. http://www.usatoday.com/story/opinion/2013/06/23/pink-floyd-royalties-pandora-column/2447445/
16. http://thetrichordist.com/2013/06/24/my-song-got-played-on-pandora-1-million-times-and-all-i-got-was-16-89-less-than-what-i-make-from-a-single-t-shirt-sale/
17. http://nadler.house.gov/sites/nadler.house.gov/files/documents/NADLER_153_xml.pdf
18. http://www.fmqb.com/article.asp?id=2537900
19. http://www.digitalmusicnews.com/permalink/2013/20130516pandora
20. http://www.billboard.com/biz/articles/news/digital-and-mobile/1553823/pandora-cfo-predicts-better-scaled-royalty-payments
I really like looking through an article that will make people think.
Also, many thanks for allowing for me to comment!
Reply
What’s up, this weekend is nice for me, for the reason that this occasion i am reading this wonderful informative post here at
my residence.
Reply
Notice, this may set Vista to “Basic” design mode (and make
all fonts nearly unreadable).
Reply
Amazing! This blog looks just like my old one! It’s on a completely different topic
but it has pretty much the same layout and design. Great choice of colors!
Reply
This is very interesting, You are a very skilled blogger.
I have joined your rss feed and look forward to seeking more of your great post.
Also, I’ve shared your site in my social networks!
Reply
I am not sure where you’re getting your information, but good topic.
I needs to spend some time learning much more or understanding more.
Thanks for great information I was looking for this information for my mission.
Reply
Admiring the commitment you put into your website and in depth information you provide.
It’s nice to come across a blog every once in a while that
isn’t the same out of date rehashed material.
Fantastic read! I’ve bookmarked your site and
I’m adding your RSS feeds to my Google account.
Reply
This thing called Pandora Media is great but I still prefer to use jailbreak Cydia apps on my iPhone because I don’t have to pay at most of the time. Many apps can be downloaded for free. Thanks for the information by the way.
Reply
I like the valuable information you provide in your articles.
I’ll bookmark your weblog and check again here frequently.
I am quite certain I will learn many new stuff right here!
Best of luck for the next!
Reply
Awesome things here. I am very glad to look your article.
Thank you a lot and I’m looking ahead to touch you. Will you kindly
drop me a mail?
Reply
Oh my goodness! Impressive article dude! Many thanks, However I am having
problems with your RSS. I don’t know why I cannot join it.
Is there anyone else getting identical RSS issues? Anyone that knows the answer will you kindly
respond? Thanks!!
Reply
I am not positive where you’re getting your info, however great
topic. I needs to spend a while finding out more or working out more.
Thanks for magnificent information I used to be on the lookout
for this info for my mission.
Reply
When I initially commented I clicked the “Notify me when new comments are added”
checkbox and now each time a comment is added I get several emails with
the same comment. Is there any way you can remove people from that
service? Thanks a lot!
Reply
I’m not sure where you’re getting your information, but good topic.
I needs to spend some time learning much more or understanding more.
Thanks for fantastic information I was looking for this info
for my mission.
Reply
Heya i’m for the first time here. I came across this board and I find It really useful &
it helped me out a lot. I hope to give something back and aid others like you aided me.
Reply
Do I anticipate a prison guard to intimately know an offender?
Start from Stage 1 again if you end up getting the red light.
Reply
I’m not sure why but this weblog is loading very slow for me.
Is anyone else having this problem or is it a issue on my
end? I’ll check back later and see if the problem still exists.
Reply
Attractive component to content. I just stumbled upon your
website and in accession capital to assert that I acquire actually
enjoyed account your blog posts. Any way I’ll be subscribing for your augment
and even I fulfillment you get entry to persistently fast.
Reply
Fantastic beat ! I wish to apprentice while you amend your site, how could i subscribe for a blog site?
The account aided me a acceptable deal. I had been a little bit
acquainted of this your broadcast provided bright clear concept
Reply
If you desire to improve your know-how just keep visiting this web site and be updated with the latest information posted here.
Reply
Launch iTunes and start the key menu of your iPhone, under ‘Devices’.
Usually the open is going to be UltraSn0w or YellowSn0w.
There’s a great deal of such attributes in iOS 5 and AssistiveTouch is only one.
Reply
I’ve friends who are part of specific cause communities through Facebook.
Then FarmVille provides you with an opportunity to stay a village life, if yes.
You pretty much get an android phone emulator.
Reply
It is therefore important to create your-self appear to be a reference of excellent information on your theme.
Windows XP sluggish performance might be recovered by
detatching contamination documents.
Reply
Eso es simplemente porque algunos atributos importantes se han quedado fuera .
Siendo el 2012 + + descubrimiento por los piratas informáticos que envía envió un mensaje como texto sin formato El mayor de ellos .
Aquí es otra aplicación para los amantes de la guitarra.
Reply
BlackBerry Messenger is a primary software for BlackBerry.
Colour be aware is extremely easy to use and also effortlessly
available. Mini HDMI port is very useful for exhibiting presentations
or multimedia on a bigger external show.
Reply
The editors choose the things place and they wish to occur anything
where it must be.
The main area in San Andreas is Los Santos, that is
greatly based on La.
Reply
The design performance of this new version is 9 times faster than the previous one.
Subsequently, comic-book publishers started selling comics onto it.
And hey, we haven’t discussed the features of both updates nonetheless.
Reply
After you have performed your iPad jailbreak, you can certainly have these apps.
It can be downloaded by opening Cydia and lookup
for the Winterboard. This phone even allows customers to play movies
in mp4, DviX and WMV structure.
Reply
The energy supply is 600W, which is much more than sufficient for handling most pc duties.
This application will identify the tune with lyrics and artist information. Let us find out about the most
popular messaging app.
Reply
Some of these cars are not just a couple of months young and certainly thinks and appear new.
Insufficient knowledge contributes to every one of the distress and worry.
This “Created-in-China” portion charges worth 9.
Reply
You will should contact the gta pages or the listingto engage them.
The name is produced by EA and is planned for discharge on November 18th, 2011.
Fantasy writer R.A creates the sport galaxy.
Reply
Use Sn0wbreeze (for windows) or, PwnageTool (for Macintosh)
to jailbreak. Repos that are most regarded are Massive Boss Mod Myi and so on. The untethered to jailbreak ipad 2 has
finally been released.
Reply
The GTA IV, as that label also knows it is definitely an action adventure game.
Plus it looked impressive as well. The living of also bad Ryo Hazuki was so
dull and filled with sailors.
Reply
I have been surfing online more than three hours lately, yet I
by no means discovered any fascinating article like yours.
It is beautiful worth sufficient for me. In my opinion, if all web
owners and bloggers made good content material as you did, the internet might be
much more useful than ever before.
my weblog: tampa drunk driving attorney
Reply
I seldom leave remarks, however i did some searching and
wound up here Pandora’s Provocation | Music Business Journal | Berklee College
of Music. And I do have 2 questions for you if you don’t mind.
Could it be simply me or does it look as if like a few of
the responses come across as if they are written by brain dead visitors?
😛 And, if you are writing at other online social sites, I would like to follow everything new you have to post.
Would you make a list of the complete urls of all your communal sites like your Facebook page, twitter feed, or
linkedin profile?
Reply
Site-uri de organizare ar trebui să proprietari și directori executivi asociate cu blogging-ul despre bunuri disponibile .
Reply
It is not a sin to feel depressed and numerous Christians
almost feel impure in bringing this epidemic to light.
This doesn’t mean they don’t feel emotions, merely that they don’t
show them. Read on and use the format below:
For an important position, your resume should show that you have the
skills and experience to excel in a management position.
Reply
For most recent news you have to pay a visit the web and on internet I found
this web page as a best site for latest updates.
Reply
Clay: The Scotland Property of iPhones, the Clay is the leader among all anti-theft and stability iPhone software!
Reply
Then you’ll discover that the gadget will go into the restoration method.
This browser can be purchased for a nominal fee and will provide a totally free demo for limitless membership.
You will use it to locate gadgets when they go lacking.
Reply
It is expected to strike the marketplaces in the latter fifty percent of subsequent year.
After the release of Sony PS3 the hackers received down to business
to break into it. Right here we choose High definition MP4
as output format.
Reply
In case you act and dress like the people,
you will be accepted by them as being a native. Purchasing one of
these simple is a great expense and it is extremely inexpensive.
Decide exactly what you would like, specifically.
Reply
Most of these applications are totally free with the exception of two…
perhaps 3. GroupMe also provides you the independence to create
a shared choice of picking up tabs at a cafe.
The quantity nine position goes to Funny JOKES.
Reply
Stage 7a: Unlocking only – In situation you are unlocking your 2g, select “unlock” simply
because well. Also, it provides Apple update alerts and tells about what you
are needed to do and when. Contact on the lookup tab to lookup for “OpenSSh”.
Reply
If you’re on the state provider (ie AT & T in Us), make sure
this option is deselected.
Reply
Notice, hear, play everything that entertains you on-one iPhone that is truly wonderful.
Preserves some time and gas nonetheless it takes some time
to ship. Notice the new bypass link as well as Hoover Dam.
Reply
Quickpwn now activates and unlocks a 2g it’s the same the ideal all-in-1 remedy.
She was disappointed and annoyed at the exact
same time. The obtain and selecting unique attributes for the
customization is completely simple!
Reply
The newest engineering that apple employed permitting them to produce pictures and videos in high definition is mindblowing.
The &number34; face time 4; attribute to the cam together with the
VGA camera put in the very front of the telephone is amazing!
This operate allows you to change involving them both (2) cameras at anytime creating a video conference encounter for
the user. There is several more characteristics to name-but I suggest that
you go through the i-phone 4 first-hand. You may fall in love together with the attributes
once the telephone is in your fingers.
Reply
Below is a how exactly to change load environment in Mediaplayer.
Over 16 an incredible number of users enjoy Restaurant metropolis monthly.
Reply
Do you mind if I quote a few of your articles as long as I provide credit and sources back to your site?
My website is in the very same niche as yours and my visitors would certainly benefit from a
lot of the information you present here. Please let me know if
this alright with you. Many thanks!
Reply
It’s true that artists, publishers, record labels, and the PROs are furious with Pandora. However, for those who love shoes has to be smart in choose the right Zumba shoes for zumba dance. It is important to know the Internet Radio Fairness Act (IRFA) too.
Reply