Pandora made a bold political statement today, saying they’d likely shut down rather than continue to pay exorbitant fees to play music to listeners of its massively popular service.
Radio stations pay different rates depending on how they broadcast music. Terrestrial stations (normal FM/AM stations) pay nothing, a tribute to their powerful corporate parents with limitless lobbying budgets. Satellite stations pay approximately 1.6 cents per hour per listener. By 2010, Pandora and other Internet radio stations, which have few lobbying resources, must pay 2.91 cents.
Pandora says they’re alread paying 70% of their $25 million in yearly revenues in royalty fees, and it is driving them out of business. Other Internet radio stations are even worse off.
For their part, the music industry says Internet radio stations have no one but themselves to blame, and suggest they find more innovative revenue models.
The blatant discrimination between terrestrial, satellite and Internet radio stations is ridiculous. But little is likely to change – large scale protests last year over royalty increases were mostly ignored.
Pandora, Our Sacrificial Lamb
Perhaps Pandora, one of the first companies I profiled on TechCrunch, needs to be sacrificed before artists and labels to realize just how absurd their position is. In a free market it’s been proven that labels will actually pay to have their music played on radio stations, and payola almost certainly continues to occur in some form.
The fact is that Pandora and other Internet radio stations provide a valuable marketing service to artists and labels. As I wrote in March when Billy Bragg argued that Bebo should pay musicians a portion of their $850 million AOL payday, they are particularly valuable for unknown artists who just want more people to hear their music:
Recorded music is nothing but marketing material to drive awareness of an artist. Websites that bring that music to listeners are doing artists a favor. In fact, they’re doing them a favor that they should (and will) be paid for. Young artists and songwriters in particular benefit from these services – Until a few years ago they had almost no way to break into the mainstream without getting a label to promote them. Now those walls are being torn down, and Bragg has the audacity to complain about it.
For now the labels want to squeeze more revenue out of Pandora and others. But when these companies start to go under and the bird in the hand disappears, they may regret their overly aggressive negotiating stance. It’s time for the labels to die, and anything that cuts off another revenue stream is at least partially good. I’m reluctantly willing to sacrifice Pandora if it quickens the inevitable march of recorded music towards free. Let’s just hope it doesn’t come to that.
Sounds like people are trying to kill the hand that feeds them…at least the labels.
http://blabtech.blogspot.com
I’m amazed once again at the whining that goes on. Oooooh, big bad labels are killing my god-given right to free everything. Couple of points here:
1. No, music shouldn’t be free. If it is, you’ll find artists looking for other ways to make a living. I think your talents as a programmer should be free. Work for free. Go ahead. It’s ridiculous that people think software, music and other intellectual property should be free because they are too cheap to pay for it or somehow they are entitled to it.
2. If Pandora wants to succeed in our model of capitalism, they should create a business model that works. If they are as good as they think they are, they will use THEIR negotiating leverage to push the labels in the direction they want. If Pandora can’t get that done alone, they should partner with a company that can.
In the end, Pandora’s distribution might will dictate whether they can stay in business. It’s natural selection at work boys and girls. Adapt or go by by.
@Michael,
1- That’s exactly the point, artists are ALREADY FINDING OTHER WAYS to make a living. I am a programmer and I am paid to write open source software, which means that I don’t work for free, people support me by paying to have a work CREATED, not every time they run a program created with my contributions. It is just a change in the paradigm, SOME artists are already going with similar approaches, like releasing their works as Creative Commons licensed, or asking their fan base to pay for the creation of a new album. I know it is a minority for now, but if I was to bet on the outcome for 10 years from now: a world with a handful of pop artists defined by huge old-fashion corporations versus thousands of fan-supported indie bands working on their own without middleman as the norm. I put money on the latter.
2- totally agreed, pandora must re-think the business model. Paying a shitload of money to collecting societies in order to have britney spears and metallica on their library is not a very clever choice.
I think I agree with your point, somewhat, Fabricio. I do think the music industry will undergo a major shift, we may stop seeing so much of the overproduced purely made for-profit garbage that comes out of it today. But all in all, it won’t be a positive shift — in the end there will be less artists, granted many of them will be passionate about what they do.
And I couldn’t agree more with what Michael is saying — we can’t blame the recording industry for Pandora’s money woes. The recording industry is not stupid — they just want to maximize their profit. I’m not so sure how much the increased advertising via pandora actually contributes to their sales.
I would hate seeing my beloved Internet radio station go out of business…
They are really good at choosing my favorite music, their product is very easy to use – why would the ideal radio service die???
Damn…
I’m with you man. I will shed more than a tear if they shut down…and I won’t get nearly as much work done.
The Coyote Blog was one of the first to note that Pandora was looking at some major trouble.
“Posted on July 18, 2008 at 02:53 PM” Link > http://is.gd/1DXk
The question is… What can we do to to enable Pandora to remain a going concern?
Thoughts and suggestions?
@David Damore That is exactly the question I think we should be asking: what can we do to help? Maybe Pandora can do a feasibility study for alternate revenue streams. At least to cover the costs of certain artists/labels who overcharge for the rights to play their music. Like if there’s an artist you truly love, maybe you pay $5 a year to add them to your station.
Or sell artist merchandise through the site. Or have “reseller” opportunities for bloggers who would like to provide Pandora as a service. Or only play music from artists and labels who don’t charge (then it’d be up to us to put pressure on the ones to do overcharge, and get them to come back).
I don’t know. It’s a complicated issue, and I’m not familiar with the regulations/laws/etc. But there’s got to be a way to keep Pandora around, and whatever it is will likely be one of the first steps toward a major revolution in the music industry (which is coming anyway).
i love pandora, don’t go!!!
600 thousand? really? Either “six hundred thousand” or 600,000, pick one.
@Kevin: Michael applies what usability experts like Jacob Nielsen found out about writing for the web. I think it’s so cool they actually apply this knowledge
WWWriting just differs a lot. If you would like to know how just read this page: http://www.usei...ng-numbers.html
@marc “alread paying 70%” – is this also part of some ‘cool’ writing for the web trend I am missing!
“600 thousand” does look weird… But then “850 million,” which is the same format, looks completely normal. I guess the only thing that matters is that you understood what it meant
Many of the labels are run and staffed by greedhead b*stards, who don’t want to lose their cut.
And many artists believe and trust their labels to handle the business.
It would be a tragedy of epic proportions if Pandora is chased to the ground by the label werewolves.
Here’s one the douchebag RIAA/SoundExchange lawyers responsible for this: http://is.gd/1DWx
Here’s a good write up in the Washington Post: http://is.gd/1zDe
We should start a website containing all contact info for the RIAA and the people responsible for this? Oh hai accountability. Maybe this has been done?
What a shame. My actual CD collection has grown because I have found new things I like on Pandora. Well crapola…as Shang Tsung said in the MK movie, “And now for a taste of things to come.”
I agree. I think this is one aspect that must be emphasized by Pandora execs when making an argument for their company.
I have found more artists than I can even attempt to count through Pandora, and have bought TONS of music from iTunes, Amazon, etc because if it.
Pandora is an amazing resource for music fans and musicians alike. It provides us with a great way to find out about new music (and PAY for it IF we like it), and the artists another outlet to establish a name for themselves. It’s win/win if you ask me.
Is it being taken into account how music is bought by listeners as a result of Pandora’s project? If the artists knew, I’m sure they’d be fighting these greedy bastards right along side of us…
“Pandora says they’re alread paying 70% of their $25 million in yearly revenues in royalty fees, and it is driving them out of business.”
One could be surprised that they don’t cook the books with respect to playbacks.
Not everyone is as dishonest as you, Chris.
Alas, common sense has always been a rare commodity in the music industry’s financial and corporate decisions. They are consistently engaging in a haphazard method to squeeze as much cash and patience as possible out of the music fans (which we all are to some degree)
I posit that Pandora’s problem is they simply aren’t _hungry_ enough!
Well what do you expect? They’re musicians.
Sad state of affairs for the music biz. Big radio and big labels just can’t figure out what to do to get out of the way. What a shame.
Tim and his team provide a great service to expose indie artists.
This issue is far from resolved.
pandora should go piratebay
and change their creepiest interface ever by the way – i mean, is there a possibly less engaging website?
Got to agree with you about the interface. However, I love the service.
funny. i love the interface; that is, the way it works. agree that color and font look a little pharmaceutical-company-like. LOVE the “flying brackets” that move from cell to cell as you enter data.
The problem isn’t with the labels, the bands, or the internet. It’s a combination. Equilibrium had been reached between the artists and their labels in which the successful got paid on both sides. With broadband internet, free access, and every artist trying to get rich, the balance has been thrown off in unseen ways. Pandora is paying more for rights than regular stations because of its audience, and because of that, the artists are gaining more recognition because of their audience. Immediate exposure has never been so readily available for artists, and labeless exposure has never been possible. The new equilibrium will come, perhaps at the expense of early achievers such as Pandora, but both are still trying to understand and harness new technology. The winner will be the company that provides exposure to artists and incentive for their promoters to work them. As of today, nobody is willing to give a reacharound, which is stunting progress on both sides.
I reject that last sentiment Mike. Pandora is too good at what they do to let this happen. Pandora should not be a sacrificial lamb because they have been successful. But, sadly, it appears as if it may already be too late.
The labels want to preserve their way of doing business at all costs, including the tactics of harming their customers by invoking their leverage in Washington DC through lobbyists who push through unfair and disproportionate fee structures, organized and sustained harassment by the RIAA and the gradual consolidation of all PUBLIC radio wave broadcasts under the wings of companies like Clear Channel, who limit the artistic sounds that Americans are able to listen to on commercial terrestrial stations.
I may sound a bit strident in the above, so just for giggles, if we put this into patriotic terms, “America is about freedom.” I respectfully submit that this freedom extends to what we put into our ears and minds. I believe our government should embrace and support this freedom, one that can and will drive significant dollars into our sagging economy, rather than try to defend a dying business model.
The Music Business thinks they can sustain their stranglehold on the free flow of new music by cutting off every new idea that emerges from the evolving online ecosphere. I sincerely hope they will one day soon find out how much power consumers hold, should we choose to express it in collective action. I don’t know what this collective action might be, but I’ll sign on to defend my right to musical freedom.
I hadn’t bought a single song for two years until I discovered pandora, I bought 3 this week alone. I hate the labels.. they are the reason I don’t listen to music anymore.
I seriously don’t understand what the music industry is thinking. Pandora and other web radio stations are a much better channel for marketing their music — you can actually see who the artist is, what album it is from, hear other music from that artist and actually BUY it. Contrast this with traditional radio where people are having to develop iPhone apps just to be able to tell what song is playing.
I must disagree with your quote though — “Recorded music is nothing but marketing material to drive awareness of an artist.” Recorded music is the actual product of the artist and the label. Yes, many artists make more money off concert tours than music sales, but that is a much a sad statement to the state of the industry vs. an economic truism. Asking them to give their music away for free is akin to asking you to run your blog and not advertise. Yes, you might end up making money through conferences and events, but you wouldn’t be getting compensated for the value you bring to your readers, and not everyone will succeed with the “we’ll make money some other way” route. Perhaps Google will solve all of this and launch “AdSounds”. I can just hear the robotic voice reading off a contextual ad for Huggies after playing Metallica’s Enter Sandman…
Keep up the good work. Bout time you guys are coming to Austin.
“Terrestrial stations (normal FM/AM stations) pay nothing, a tribute to their powerful corporate parents with limitless lobbying budgets. ”
As much as I hate corporate radio, this is incorrect. I’m involved in the music industry and all am/fm stations pay for the music they play, excluding some college stations that don’t need a license. 3 organizations provide blanket licenses for radio stations and many other forms of media that require licensing. ASCAP, BMI, and SESAC provide licenses in which they keep track of how many songs in their catalog are played the previous month and estimate a cost based upon that information. These three organizations take in between $750 million and $1.5 billion in revenue from radio stations, tv stations, internet station, and many other forms of media broadcasting. Yes, radio stations practically get all those songs covered by the ads they play but they certainly do not pay “nothing.”
this is only half true… Webcasters pay both royalties to (ASCAP, BMI and SESAC)….and…SOUNDEXCHANGE…
terrestial radio stations don’t pay SOUNDNEXCHAGE.. this is where MA was referring to “terrestrial radio stations pay nothing” im sure..
thanks mike & fly. i commented at the end of this session without seeing this. in over-the-air broadcasting for 30 years, i can attest that regular radio pays directly to BMI, ASCAP, SESAC. the bills are burdensome but not crushing. (as long as your stations are profitable, and not all are.)
“I’m reluctantly willing to sacrifice Pandora if it quickens the inevitable march of recorded music towards free.”
Easy for you to say, Arrington, you won’t be the one without a job and a paycheck should Pandora fold.
Yeah, taking the ball and going home — that’ll learn ‘em good.
iTunes pays out 70% of their revenue as well, and they’re doing just fine.
iTunes is doing fine because Apple doesn’t solely rely on the revenue from music sales for its business.
…and iTunes charges for music. Pandora does not.
most of the music on iPods does not come from iTunes, but rather from the iPod as well. iTunes is like a feature that never gets used, but people feel good knowing it’s there.
So having the store helps sell more players.
So why doesn’t Pandora start inserting ads? Charge $10/month for no ads.
If they get revenues up enough maybe they could afford the license fees to enable infinite skips or even listen on demand.
Payola doesn’t ‘almost certainly’ exist, it ‘certainly’ exists. Labels found a way around that shite along time ago by paying publicists to lobby the stations -creating a middle man basically. Same thing. It costs a lot of money to get your song on the radio -why? because the middleman now requires payment. Total crap.
Sure Mr. Major, ill sign your licensing contracts and pay your licensing fees… Thanks!
Sweet, now we can legally play all that cool music everyone loves on our site, watch our growth curve shoot up now..
2 months later.
Brrring, Brring……. Brrring, Brring…
Hello…
Ahh Mr.Major, hey dude hows u doin?
Ohh, whats that… we have to pay what?!!!
Ohh noooo.. but we only make half of that in advertising revenues, what do we do, can we negotiate something?..
What!!!… You buy us for 50c and save us having to tell everyone we went bust.
Wow, thanks Mr. Major, you’re a real asset to society..
It’s unfortunate that Pandora needs all the high profile labels (that expect royalties from anyone giving exposure) just to attract the listeners to the lower profile independent artists that don’t act that way. If it weren’t for the habits of the public they could just host the smaller artists and let the big artists start suffering from lack of sales.
Do they need the high profile labels?
its almost like this internet radio things needs to unbundle. companies like Pandora can organize the links to the music – and the labels can manage the revenue from the streams.
or the music streams can be auctioned to advertisers, and if the label doesn’t want the revenue stream available – the music can be removed, or difference paid by the consumer.
“…the music industry says Internet radio stations have no one but themselves to blame, and suggest they find more innovative revenue models.”
——–
I can’t possibly be the only one who finds this amusing.
They should move to China. China is the last and only place that labels have no power at all. Google just launched music search in China with online free music playback. I believe they got a pretty reasonable license deal because when all other sites are providing illegal contents for free, the labels will take anything they can get.
I’ve never understood why Pandora hasn’t adjusted its economics based on the labels/artists that want the free exposure.
Their algorithm selects an assortment of songs “like” the channel chosen. Why they haven’t adjusted their playlist away from the big labels so they can improve their economics isn’t quite clear to me…they’re promoting the people trying to drive them out of business. Whereas the opposite approach would likely raise the stature of artists who became known because of exposure on Pandora as a channel.
Very good point. There are a lot of indie artists that would *love* to have the exposure of a service like Pandora, and I think that when coupled with some sort of review process, it could be a really valuable arena for them.
Pandora has always been about exposure to new music for me. It doesn’t really matter if the band I discover is making hundreds of thousands of dollars or just a few; in fact, I think I’d like it better if I found a small, upcoming band to follow and support.
Absolutely.
This is a good idea, the problem is that the Pandora library isn’t nearly as large as you think it is. Not a lot of independents, and Pandora has challenges in analyzing large amounts of music.
It takes them something like 20 minutes to analyze a single track. In order to grow significantly, they would need to fix this in order to do a songza style promotion of new artists.
It takes a lot of people listening to build the social graph of songs that go together and that people want to hear. If the database gets a big influx of unknown non-label music it will take a long time to gather enough thumb votes to restore the selection quality back up from essentially random.
Maybe they should start a parallel site that’s non-label music only and set their own royalty rate. Let the two sites fight it out for listeners and revenue. If the indie site wins the labels will be begging to get their artists on it.
Why do you think that any internet radio station going out of business will give the “music industry” any pause at all.
They would probably be happy.
They don’t think that internet radio is good advertisement because they don’t control (payola or “Play this more or you won’t get the next american idol single to play”) what is playing.
If they had control the radio station would play all the stuff the masses are being trained to like today, and you would hate the station.
Don’t go! Pandora is awesome! Slap on some adwords and I’ll click through them!
My suggestion for this ailing issue of free music: Make a shorter version of a song just like a trailer and give it to broadcasters for free or very minimal fee. Charge adequate fee for full song, internet is on-demand compared to normal radios, it cant be given out free.
Michael Arrington = Francisco d’Anconia with this post
Music labels = Orren Boyle (Associated Steel), James Taggert and co.
Pandora – unfortunately – does not a Rearden make =/
Bring on the panem et circenses!
I hope Pandora just moves their business to “friendlier” markets out of spite. I used to love the site, but then they blocked Canadians so I haven’t been able to listen to it for at least a year anyway…
Think of the irony though if a tool like Pandora went from doing everything it can to pay the labels to finally just going illegal broadcasting 100%.
At least if they end up going down, I hope they open source their radio and algorithm for matching music. I would love to see some other sites take the ball and run with it…
totally agree. there is definitely a “spite” play for Pandora should they choose to go that route.
What the labels don’t get yet is that Pandora is the only viable piracy-killer out there. Downloading torrents is free, but it’s a huge amount of work to figure out what to get, then organize it into a usable library. The time saved is worth at least $10/month.
This ‘battle’ between the record labels and everyone else rages on and on, and they continue to win and will do so for a long time yet. The reason? Not because they have deep pockets and political clout, it is because they are focused and organized. Their ‘opponents’ – the listening public are for the most part disorganized and apathetic.
If the billions of music consumers from around the globe could only get organized and with a single voice tell the record labels, and those that profit from their practices, where to get off then that would be a day to remember.
I for one would love to see it happen. I would love to see the system evolve into something equitable where large and small artists get heard on an equal footing, and where free choice really does exist. Sadly I’ll die of old age first…
consumers are organised. They share music
and love it. Unfortunately the Americans buy music on itunes 
Plenty of us still hate iTunes and a number of Apple products, I assure you.
I’ve stopped buying on iTunes recently and have begun buying my music on Amazon via Pandora. Good for Pandora, good for me. This is one thing Pandora users can do to support Pandora. Or Pandora can bill me $10 a month and we can call it a day. But I do understand I am probably in the minority on this last point.
I’m ready to pay $10/month for Pandora right now.
The music labels must die. Plain and simple. They do have kind of unlimited resources, plus they whore themselves in Washington. So thei will still be around for a while.
I will continue to download music as if my bandwidth and HDD were infinite, and will curse the labels.
It is like Obi-Wan giving Jedi lessons to Luke, and then light-sabering his nuts because “that’s my light saber, you bantha-face farmer!!!”
Instead of just trafficing content, how about generating content? Pandora has the user base. Regular radio stations don’t just play ads and music. They do traffic updates, news, live club broadcasts, talk radio, etc.
and offer them a 360 contract.
see; http://www.nyti...sic/11leed.html
So the labels say Pandora needs an innovative revenue model but how about the labels looking into alternative revenue models themselves?
At least the labels are opening a new market selling music downloads to game consoles so people can jam with their Rock Band or Guitar Hero. See, music labels? You can do it!!
When wonderful services like Pandora get shut down, it will only piss off people more and more. That can then turn to angry customers that don’t buy music anymore and will resort to other methods.
If the US internet stations die, people will just switch to the international ones. Yesterday’s Last.fm post (http://www.tech...ch-up-to-imeem/) is interesting when you look at it that way.
Maybe all that last.fm is waiting for is a US internet radio doomsday?
I think Last.fm is better, which is what I blog about at Sipsnblips.com,
However I would be glad to see Pandora go if it gives governments an inkling they hurt themselves by driving business out of the country. It’s hard enough to keep tech jobs in the US w/ our high taxes and high cost of living.
Lawyers, politicians, they want a piece of the action, but when you drive one or two of these big social networks out of biz (in the US) with regulations, you’re going to kill enthusiasm here and many people in the US will lose jobs.
Killing of an existing website like Pandora is one thing, but what about all the little startups hoping to be the next YouTube, Myspace, Pandora? You take away hope! Hope is what keeps these very talented people working through the night, living on “pizza and Pepsi” as they say. Two of my best friends, very talented, have already moved to Europe. The enthusiasm and talent can and will move, the money can and will move, the data and servers can and will move, and US data-centers will cry, and all the people supported by those websites, data-centers and tax dollars will cry. I think it will be the dot-bomb all over again. What do you think?
They should just take the last.fm route and undercut the collecting societies. Last.fm are offering artists to get paid directly, thus saving money on royalties while ensuring that artists get paid more.
http://musicman...s/announcement/
Michael,
I think your stances are nearly 100% wrong.
1) Pandora shouldn’t throw in the towel just to send a message. I’m sure the labels would be *delighted* to see Pandora die, and former Pandora fans are unlikely to carry enough clout with paid-off legislators to create any long-term policy differences.
2) But what frankly really pisses me off is your continued stance that “music should be free.” What a bunch of bollocks. Artists provide something of value and should be compensated for it. Music should be free no more than legal services from attorneys should be free or novels from authors should be free, etc. That’d be like saying, hey Ms. Attorney, why don’t you give away all your legal services for free but make it up on the lecture circuit? Mr. Author, why don’t you give away all your books for free and then go on reading tours?
The fact that a lot of greedy and amoral people are delighted to pilfer music when they can just as easily buy it indicates that, for them, music *IS* free. Doesn’t mean that music, inherently, SHOULD be free.
And no, just because something is difficult to enforce doesn’t mean it’s not worth enforcing.
I absolutely agree with your position.
Do not compare physical goods and digital goods. The marginal cost of (re) production is zero. Simple economic theory says the ocst will go to zero. Keep holding on to your ‘high’ standards and moral, perhaps the human nature will suddenly change.
Tom, this is hilarious! I love how you justify stealing because the cost of a digital good is 0.
Here is the formula you should use.
Cost of Music (CD, MP3, Ringtone, etc) = Fixed cost + marginal cost/(# of paying customers)
Still stand by your justification? If so, your Econ. Theory professor must be disappointed in you.
As you can see Gogi, as the “# of paying customers” goes up, the cost goes to zero (see how that works with the denominator approaching infinity?).
I get about 500 MB of new music per day, but of course the quality is usually 128K, so if I like a song, I’ll buy the CD and rip into FLAC. I go to see about 2 live shows per week and often buy tshirts from the merch booth.
The Grateful Dead had a model that fits well with the web/music ecosystem, too bad they were waay before their time. String Cheese Incident also was very innovative in their monetization strategy with lots of merchandise and even travel agent services.
You people keep preaching your ethics and operate as if everyone else will follow, and you will simply be left behind.
Tom, your ethics are your ethics. Not asking you to change what you do, and supporting live music is great, buying tshirts is great and buying a CD if you like the music is also great.
BUT, downloading 500 MB of music a day is stealing.
As for the digital/physical argument, the marginal cost of most physical goods also “approaches” 0. What do you think that it costs Mars to make 1 more Snicker? Would you steal 1? Would you take a bite and then buy the rest of the bar if you liked that first taste?
In the interest of full-disclosure, I own an ad agency that does a ton of business with labels (and promoters, management, tv networks, and venues), but I’d like to think that this is outside my business interests.
When you can email me a snickers bar, then we’ll talk.
Until then, 1s and 0s are not the equivalent of chocolate, caramel, and peanuts, etc. which will never go to zero and are finite resources.
Artificially imposed scarcity on resources that are infinite does not justify costs.
Ethics are an entirely different discussion.
Tom, 1s and 0s are equivalent of chocolate given their low marginal cost. In other words, they are equivalent in qualities relevant to the analogy you first made. That’s the power of analogies: you can ignore the differences that are irrelevant and focus on the ones that are parallel. You seem to forget the meaning of an analogy wherever convenient to your argument.
Next, marginal cost. There’s no economic theory that says marginal cost pricing is the way everything should be. In fact prices are rarely determined by marginal cost. Products are priced first by value, then by competitive/bargaining constraints.
“Artificially imposed scarcity on resources that are infinite does not justify costs.” but it justifies price. Why? because it has value.
“Artificially imposed scarcity on resources that are infinite does not justify costs.”
If by resources, you mean bits and bytes, then sure. Not actually even close to infinite, but I get your point: so readily and cheaply available that they might as well be.
What this model doesn’t account for is the initial investment in creating the music itself, which is the actual resource. Same would be true for a movie, a book, etc. I mean, how much easier is it to reproduce text? Yet we still believe (I hope) that a quality text (in whatever format) is worth paying for in recognition of the value of its content (the true resource) and the investment made to produce the work (of which the price is, in part, an attempt to recoup that investment).
I don’t think copyright should allow anyone to continue to recoup that initial investment indefinitely (as it pretty much does now), but I also don’t support the other extreme: everything should be free as in beer.
Quality work, regardless of the method of delivery, has real and monetary value.
I don’t even listen to Pandora all that much, and I can attest that I’ve discovered quite a few new artists that way. I don’t know why record companies wouldn’t want the publicity.
As someone who has worked on both sides of the fence; my view is the technology and creative industries (not just the music business) need to understand one another much better than they currently do. It is very sad that in 2008, almost ten years since the original Napster launched, that many of the same arguments from back then are still being debated now.
Taking the technology viewpoint firstly; if you are a Web 2.0 start-up your immediate goal must be to develop your offering to attract users and ensure the user-experience is strong and intuitive to continue to build usage and users. If your start-up relies on using other people’s copyrights, paying advances to rights owners can eat up most of your start-up capital and initial revenues. This does not encourage the growth of services that could potentially help promote and sell more music over time.
Music companies, especially the major labels and collection societies can be incredibly difficult to deal with. What is interesting about Pandora is that as I have a UK IP address, I cannot access the service. The Internet is global; but the rights are granted on a territorial basis. This is partly historical, as many acts used to sign to one label for the US and another for the UK and Europe, etc. This leads to an administrative and cost burden for the technology company.
But taking the music (and creative) industry point of view, rights owners DO need to be paid. And that means paying the performer as well as the writer. If a track is played on the radio, played in a coffee shop, used in a movie soundtrack or TV show, included on a complication, a newspaper giveaway, a download or a stream; someone somewhere has to be paid.
The situation is distorted in the US because terrestrial radio has not traditionally paid performers (although writers do get paid). In many other territories around the world, including the UK, performers receive payment for radio and TV play. There has been a great deal of lobbying in the US to reverse this situation, which is only fair in the modern age – if internet companies must pay, so too must traditional radio. Up until now, the US radio market has been the exception rather than the rule.
The principle of payment for performance, even though performance helps the profile of the individual artist, is fundamental. Network television executives would not ask Oprah Winfrey to work for free on the basis the exposure of her TV show helps her sell more books and magazines; equally technology companies should not expect performers and rights owners to give them their rights for free because the acts get “promotion”. Some acts don’t tour or sell merchandise and so are more reliant on this sort of income.
So what is the solution?
Licensing needs to be simpler and easier from an administrative perspective. Wherever possible, right should be granted on a global basis. Advances – ideally – need to be less; rates should increase incrementally as services grow, BUT they do need to grow so that performers are fairly paid.
Will any of this ever happen? Well … things are improving, but we have a long way to go.
I lament the loss of Pandora, howver while internet radio can provide marketing for artists and in fact drive sales, that does not absolve them of paying royalties. The structure of the royalties in this case is all wrong. It should be like radio, which in Australia at least is based on a small percentage of revenue. It should NOT be at the absurd levels set by the United States’ agencies.
Online services have the potential to get astronomical financial returns. Both the copyright holders and the services that rely on the music should work out something mutually satisfying. Both of them now seem to be totally astonshed at the other’s approach.
I suggest they learn to live with paying 70%.
but Wes, do you also accept the monopolistic policies these big corpos enforce? They use their position like dinosaurs. It so NOT about the love for music to divide and conquer. Michael must be right, they probably have to die first. (and of course they will take down anything, perhaps Pandora, but do you think they care?
The following may or may not be true:
Those who control the music, control the radio stations.
Those who control the radio stations, control the elections.
Those who control the elections, control the country.
Soo, if recorded music is essentially just an ad for the artist, then it would make sense to pay those who broadcast it. But then by the same argument, someone who listens to music is just hearing an advertisement without getting anything else! Does that mean i should get paid for listening too? And usually, those who create these ads (aka the artists) get paid too. So, the record industry pays everyone and gets nothing? I think you didnt quite think this through ….
No, recorded music is not the ad , but the playing of a recorded segment of the artists work can be considered advertising an artist. As in encouraging further research and purchase of an artist’s work. The R-label (and artist) make money by sales of lasting medium of the art. Performance has been seen as “advertisement” in the past by the R-labels where the R-1abe1 subsidized performance. The advertisee never gets “paid” except thru free entertainment. Magazines suck in thier model of getting the advertisee to pay for lots of ads but little content. Imagine paying for a radio subscription and getting 80% ads. Radio, i-net or otherwise, shou1d be seen as a free service by the R-1abe1s as a vehic1e for advertising thier goods. Where theservice makes money thru thier own advertising of other goods & services. As in symbiotic.
Their model also fails because it depends on my using them as Amazon’s referral. My want of instant gratification drives me to the only indie store left within 40 miles in an effort to help keep them alive, instead.
Maybe the blogosphere should take the lead and call for a month-long moratorium on purchasing music. It’s not like music are daily staples we must purchase. Pandora could participate by going silent for some time each day. But to be effective, you must reach the teens on MySpace and Facebook.
“But to be effective, you must reach the teens on MySpace and Facebook.”
Yeah & maybe they’ll not have sex with each other as well. How about a donation model instead, similar to NPR?
If Pandora were to go dark, I’d just back go to roachclipradio.com
mike,
i left this same comment on center networks blog so i’ll just cut and paste
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yes, the royalties are too high and should be rev share based, not per play based. and why is it that terrestrial radio and satellite radio have much lower (or non existent) royalties. we need a level playing field for sure.
but pandora doesn’t run in stream audio ads.
our portfolio company targetspot is monetizing internet radio very well for those who want to run in stream audio ads. and pandora should use them. but they don’t. and they don’t use their competitors either.
the truth is people minimize the player when they listen to internet radio. so monetizing the stream is the best way to make money. ignoring that option is a mistake in my opinion.
Actually, has started inserting ads in at least one case (Squeezebox) and I expect to see this model applied to their iPhone streams if they decide to press on:
http://www.zatz...upported-audio/
i think they should do that. my guess is it won’t take many audio ads (way less than traditional radio) to generate enough revenue to make the business profitable.
Fred, I’ve seen the TargetSpot performance numbers for a handful of test accounts and “monetizing” it very well is true for the publishers.
Providing measurable value for the advertiser, not so much.
All Internet advertising will be boiled down to comparable measurements (CPC, CPM and/or CTR), and the TargetSpot #’s are laughable when using those metrics.
I have a world of respect for you, but that seems like an out & out plug.
Gogi – not sure what tests you are referring to, but we have many advertisers that are getting great value from in stream audio ads. At the very least, they are much more targeted than terrestrial radio – can be geotargeted to the zip, genre and in some cases, specific age and gender of the listener. Advertisers can day part, frequency cap, and even use conversion tracking software to measure ROI – just like any other best of breed online ad network.
Fred, I agree that Pandora could re-consider using in-stream audio ads.
But the effect of adding these ads will probably drive users to subscribe to their paid service, which currently eliminates ads, because the beauty of Pandora is high quality, uninterrupted music that I chose to listen to. Ads are NOT part of my preferred listening schedule.
So by burdening themselves with an additional layer of technology and requirement for a larger sales team, the end result for many people will be the same exact service provided today, but the consumer loses something in either case.
If the fee structures were fairly applied across every medium Pandora could sustain their costs for the long term, allowing consumers to choose to use the Pandora player while looking at visual ads, not highly intrusive audio ads.
If the goal is to have the best consumer experience, I believe this is all about the fairness in the fee structure, not the business model.
You seem to be all about “fairness” but deploying Sat radio is far more expensive, and the industry has allowed for such differences and set pricing accordingly. Sirius/XM have yet to earn a profit (this is the quarter to really know), but I haven’t heard them complaining.
If you live in the “boonies” (95% of the US geography), Sat radio is much more functional than pandora which is mostly useless. I’m certain I will have a subscrip cost upgrade soon. If you love pandora, shut up and pay for the service.
why as a user must I listen to ads while engaging in marketing activities for the labels by listening to their music?
We cannot continue to debate the issue using the paradigm defined by the labels. It’s time to break them, and apply basic logic to what is going on here.
I’m all for that, let’s define the paradigm in clear terms. There’s a good post for this evening.
I just don’t think internet radio should be able to complain that some other organization negotiated a better deal, so they deserve that same deal. Distribution channels differ by their value to the rights owner. And nobody but the rights owner should set the terms.
That said, I also argue that an mp3 is not a product, but a marketing tool, when viewed from a practical perspective. This is not a discussion of morals in my mind.
Michael, listening to full-length songs in FM+ quality, with “infinite” choice and complete user control is not a marketing activity for most record labels. At that point, its a reasonable substitute for their biggest revenue stream (selling music) and a customer activity that they are trying to monetize.
Why is it the “supplier’s” fault that “vendor” can’t make money?
If Pandora wants to survive (I like Pandora, btw). Do what everyone else does – cut costs (what is the change in bandwith bill at different stream quality? crowdsource the genoming), innovate revenue opps (more services, sub models, create their own content, events) and get market power to negotiate better deals with their suppliers (iTunes does it in music, Walmart does it with everyone).
“why as a user must I listen to ads while engaging in marketing activities for the labels by listening to their music?”
How is listening to music a marketing activity if you never plan to pay for music!? THINK and recognize the absurd hypocrisy here.
“why as a user must I listen to ads while engaging in marketing activities for the labels by listening to their music?”
I agree, these greedy artists/labels should also get their performance income from live appearances taken away. How dare they earn a living from something that they created!
Webcasting licenses will cost $1.8 per 1000 streams next year:
2006: $0.0008 to stream one song to one listener
2007: $.0011
2008: $.0014
2009: $.0018
2010: $.0019
Hard to be profitable from ads which hurt the experience. The model will go to a monthly service eventually. Many people will pay $6 a month to listen to unlimited music anywhere with great quality (even with the current fee structure, $6 will amount to listening to music for more than 10 hours a day).
The problem is that may startups build a model without any thought to profitability. It happended in 1999 when web retailers sold goods below cost to build critical mass (they died). Now people are used to free good music, and it will take some downfalls to get back to a model that is sustainable for all involved.
Pandora is great. imeem is great. The both loose a lot of money because they are giving for free something that has linear variable cost.