Is Pandora Radio The New Pandora's Box?
Pandora, which filed a lawsuit in the New York federal court to reduce its artist royalties, is also taking their battle to Congress
By Michele Wilson-Morris [11-28-2012]
If you've been keeping up with entertainment news, you know that Pandora Radio has been much more like Pandora's Box lately than anything else. Sure, they have millions of songs streaming, and users can tune in to new music based on artists who are comparable to their favorites and create great playlists, but not everyone is whistling Dixie. There are quite a few in the industry who are more than miffed about Pandora's compensation (or perceived lack thereof) to artists and songwriters. Pandora's response is the filing of a lawsuit to lower the percentage of royalties being paid, which is currently only 4% of its revenue.
Pandora filed a lawsuit in the New York federal court to reduce its artist royalties, and is also taking their battle to Congress in hopes of securing legislation that would lower its royalty obligations. Rick Carnes, president of the Songwriters Guild of America and co-chair of the Music Creators North America Alliance responded, stating, "This is greed in its purest form. Songwriters want to support the growth of online music services to the benefit of everyone, including consumers, but the type of behavior being exhibited by the multi-millionaires who own Pandora is simply making that impossible. For the founders of a billion dollar business that is built completely on the backs of music creators to suggest that paying those creators, four percent of their revenue is still too much should be an embarrassment."
The group is focusing its efforts on bringing attention to Pandora fans and the music community at large, who they feel should be informed about the situation, in the hopes that they too will demand fair and equitable payments for the artists whose music they are enjoying. With reported revenue of $338 million for 2011, and a market cap of over $1.5 billion, Pandora doesn't seem to be hurting for money, so what's the real issue here?
"It's outrageous Pandora would try to reduce the already nominal amount they pay songwriters and music publishers, when Pandora's business model is based entirely on the creative contributions of those songwriters," said David Israelite, president and CEO of the NMPA. "To file this suit at the same time that Pandora's founders are pocketing millions for themselves adds insult to injury."
The battle is heating up as "those concerned about outdated laws that discourage new companies from offering music to consumers over the Internet have formed a coalition to advocate for modernizing the copyright performance royalty rate setting process that now discriminates against new market entrants." The Computer & Communications Industry Association (CCIA) announced it was joining other organizations and companies to launch the Internet Radio Fairness Coalition to lobby for updates to the rules that set music performance royalty rates at different levels, depending on the type of technology involved. CCIA noted that Internet radio companies pay half their revenues in royalties, while cable providers and satellite providers pay 15% and 7.5% of their annual revenues respectively.
This is a particularly hot topic, as the The NPD Group, a leading market research company, stated that "50 percent of Internet users (96 million) listened to music on an Internet radio or on-demand music service in the past three months. More than one-third (37 percent) of U.S. Internet users listened to music on Pandora and other Internet radio services, while an equal percentage (36 percent) used an on-demand music service, like YouTube, VEVO, Spotify, MOG, Rhapsody, and Rdio." Also, with the audience for internet radio increasing by 27% over the last year, and the on-demand audience increased by 18%, the stakes are that much higher.
NPD's "Music Acquisition Monitor" revealed that since 2009, the percentage of Pandora users who also listening to other platforms has declined: by 10% for AM/FM radio, by 21% for both listening to CDs on a non-computer device and digital music files on portable music players. "Part of these declines can be attributed to the fact that 34% of Pandora users are now listening to music on the service in their cars -- either connecting through an in-car appliance, or listening via car-stereo-connected smartphones or other personal listening devices." This means that fewer CDs will be purchased, so upswings in artist revenue will take an even bigger hit, assuming that the trend continues.
So what's a consumer to do? We all love Pandora. It's easy to use, economical, practical, and it helps us to organize our musical lives into a more personalized experience. Are listeners willing to pay more so artists can be fairly compensated? Do they even care as long as they can access the music they want and need? The question has been raised, the jury is still out on the verdict, and we should all hope, for artists' sake, that there's not a mistrial. Stay tuned.
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