JPF Home Page Forums General Messages General Message Forum Pandora boss urges 85% pay cut for musicians

I didn't miss it. I actually said you can already circumvent it by writing for exemptions from PRO payments. This is already possible. I know this as I've already had a co-writer on a track ask me to sign such an agreement for a "radio" type of situation. I turned it down because it was too little reward for the situation.

I understand the concept you're describing. But I'm not sure how you'd ever make a living that way. The difference you describe is to do away with it entirely for everyone, not on a case by case basis per artist.

Could you imagine what that would cost a company to get such exclusive rights? What would the "little guys" do in terms of paying for playing those discoveries? Cause based on this post, it would mean you wouldn't get paid at all unless you somehow got a massive following - which without royalties in the interim might not happen without big financial backing.

Thanks Jody.

Out of curiosity.. if you don't have a publisher.. who gets the publishers cut, so to speak. And is the writers royalties the same as normal or discounted as well

thanks again

God Bless Roy and Helen

Technically the writer is also the publisher if they haven't signed it out to someone else. However, if you're not registered with a PRO [Performance Right Organization] and SoundExchange, all of this would mean nothing.

All of the royalty rates for stuff like Pandora and Spotify, et al is discounted, to my knowledge.

Jody

Yes, I'm serious :-) A system where every artist negotiates their own radio royalty rates is... unfeasible to say the least, even if organizations like JPF banded together to negotiate on our behalf. Even if you took away the statutory royalty aspect, I'm 99.9% sure Pandora would still use a flat rate, just like Apple's iTunes has flat rates for everything. They're not in the business of negotiating with individuals; it just isn't worth anyone's time.

The free-market solution would be this: if you don't like Pandora and the way they do business, don't submit your music there and make your own service. You're not required to work with them if you don't want.



Are you familiar with the concept of equilibrium pricing? Do you think the people who negotiate ad rates and set up ad purchases on Pandora are thinking, "Hmm, we love our advertisers, we're not going to charge as much as possible."? Do you think they haven't done user testing and studies to find the optimal number of ads to play per hour?

ALL businesses that are seeking to earn a profit attempt to set the optimal (equilibrium) price where the price of the good times quantity sold results in the most possible revenue. So to use a small-scale hypothetical, let's say they charge advertisers $100 per minute, and as such, they get 60 minutes of advertising, for a total of $6000 in revenue. Your (frankly, nonsensical) suggestion that they simply charge more will mean that they might get $125 per minute, but perhaps only 40 minutes of advertising, for a total of $5000 in revenue.

Pandora's sole motivation is to optimize their ad pricing so that they are charging as much as they can, while also generating the most possible ad buys. Saying that they should raise their ad rates makes no sense, because they've obviously set it as close to the equilibrium price as they can. That's what ANY business does. This is basic 101 level stuff.



Pandora is completely and totally different than any other form of radio, since it is on-demand and serves up to millions of simultaneous streams, as opposed to one stream. It makes no sense to apply a standard radio royalty model to that. Literally no sense at all.



Yes, I'm a full-time musician. Or more accurately I'm full-time music composition, production and sound design.

At the end of the day, we can discuss alternate solutions until we turn blue in the face, but the actual, real-world choice seems rather straightforward. Either Pandora lowers its rates, or they go out of business. Again, may I remind all of you that you don't HAVE to submit your music to Pandora. I for one willfully submitted my music there and reap the benefits every day. If Pandora went out of business, I guarantee I would lose a lot more than 85% of my quarterly royalty payments, and I bet you all would too.

The choice here isn't between 100% royalties and 15% royalties from Pandora. It's between 15% royalties and NO royalties because PANDORA WON'T EXIST OTHERWISE!

I also willfully submitted as well.

Pandora, in case you didn't read some of the links on page 1, is doing 13x less advertising time compared to traditional radio. 13x LESS. No wonder they're not making enough to reduce their royalty to income ratio. That's a huge difference. Regardless of the cost of advertising. They should be able to do like google, charge a premium for targeted advertising and do a bit more of it - in that "free" streaming they do. They have a captive audience and should know a lot about them. Charging more is not nonsensical, it's a business reality that has to be looked at. As is the frequency of running ads.

Since they're doing so much less advertising on the subscription free streams comparatively, I'd postulate one of two things. 1. They're lazy. 2. They're F'n lazy. Take your pick. Traditional radio runs more ads and somehow gets their royalty payments down to about 4% of their budget. I'm gonna take a moment to do a little simple math... Pandora claims they're paying about 50% of their income to royalties. Guess what happens to that number when you increase the ad frequency by 13x without increasing the ad cost? It should drop to 3.8%. That's right close to the 4% traditional radio claims.

Andrew is right, the answer is pretty straightforward, Pandora and other digital radio types need to increase advertising frequency and stop asking for bigger discounts from content creators. We shouldn't be penalized because they can't do the necessary work to run a "free" ad driven radio system in an obscenely profitable manner. They could increase the ad frequency by 10x and get to paying full royalty rate and still get their payouts under 10% of income. That's a win win win. Pandora wins with more income. The content creators win with more royalties. The consumer wins with less ads than traditional radio.

To clarify, I personally wouldn't see a huge change if Pandora bit the dust. Much more of my royalties at this time come from film, trailer & TV placements and usages. Previously it was much more from traditional radio. What I do see is this, it's a way to start the landslide of all broadcasters asking for discounts. That is the wrong way to go about it.

You're right. Based on this concept, compared to say Cable TV, the royalty rate should be substantially higher. People pay a premium to get content on demand, it's a luxury. Every other on demand service charges significantly more (except maybe Netflix), why should on demand music be any different?

This morning I check new royalty statements. I'd like to point out that another digital streaming service that I haven't mentioned is Deezer. Instead of lumping Deezer in with all of them, I should point out that they pay between $0.018 and $0.011 with all that I've seen. Yet, I've not seen anything about them complaining of royalty amounts.

My Deezer payments are $0.0017 per unit. Are you sure you're not looking a cumulative numbers?

Scott, I double checked it...

Biggest royalty is: $0.0328 per stream. Average appears to be $0.0188 per stream. Lowest I see is $0.0072 per stream.

Jody

Why the different prices per streams?

You can't compare traditional radio ad frequency to internet ad frequency. Think about it this way. When we watch TV, we are happy to sit through 3-5 minutes of ads in a 30 minute show. And yet, how many of us are willing to sit through even 30 seconds of advertising to watch a YouTube video? The internet is fundamentally different than traditional radio + TV. People have NO patience or attention span online. Nobody, and I mean NOBODY would use Pandora if it had even 2x the amount of ads it does now, and the people at Pandora know that.

Do you honestly think it's some brilliant business suggestion for them to run more ads? Do you really think they are just twiddling their thumbs, ignoring the opportunity to make more revenue? You say "they're lazy", and honestly Jody, that's just stupid. The amount of technical infrastructure needed to run a service like Pandora is mind-boggling. It would be in comparison trivial for them to simply play more ads in the stream. They're not doing it because they know people won't use the service at all if they do.

I've watched videos streamed through non-YT sources that have ~1-2 minutes of ads total in a 45-60 minute video. And people complain about THAT. I think you're living in a completely different reality where you believe that Pandora could possibly play as many ads as traditional radio.

Do you know why it's important for services like Pandora to exist? Because they're more convenient for consumers than pirating music. Piracy is unstoppable. It's undefeatable. The ONLY way to deter people from pirating is to create a more convenient alternative. The moment your alternative becomes less convenient (premium $ service, too many ads), people will go back to pirating.

People with your mindset howled about iTunes "cheapening" music as well. How could they charge 99 cents for a song, when a traditional single could be $5-10? How could they charge $10 per album, when we've been selling albums for $18-20? But iTunes is perhaps the savior of the industry. It has allowed independent artists like you and I to truly monetize our music and distribute it to everyone in the world. It has cut out the middleman, ultimately paying us better royalty rates than we would ever get with old-school label deals.

Simply put, iTunes is a convenient alternative to piracy that actually WORKS. If we as an industry had listened to conservatives who wanted to hold on to premium CD pricing, we would all be much worse off.



This comparison also makes no sense. Pandora isn't actually on-demand. You don't choose specific songs, unlike Netflix, where you pick specific movies. Pandora also has a very limited library of music compared to ACTUAL on-demand services like Spotify, or music stores like iTunes. I would point out that actual on-demand services pay even lower royalty rates to content creators (Spotify's rates are extremely low, Netflix frequently pays no royalties at all and just does buy-out streaming rights).

A better comparison, though still not quite applicable, would be a premium channel like HBO, where you can sort of choose the type of content you want, but can't necessarily watch specific movies or shows. However, as mentioned earlier, fewer and fewer people are subscribing to such channels; this is a model that is not doing well. Games of Thrones for example is the most pirated TV show of all time, because too many people find it inconvenient to pay for the premium channel.

You're right Andrew. If Pandora can't advertise more, then we're just screwed all the way around. In that case, as I said, I'm not vested in Pandora to the point where I care if they go down.

However, I see more and more sites, and other places that force an advertisement on a little clip of video. Which is way more advertising than traditional TV. Doesn't seem to be stopping people from consuming media on the net.

To call Pandora something different from regular radio, I think is a mistake. Consumers I talk to view it as radio. I listen to people who are regular joe's consuming. They think it's radio, then I'll agree with them.

I also think that the mistake is not running enough advertising on their "free" streams. Increasing the ads on the free streams does one of three things: people either stick with it, people leave in droves, or they upgrade to a paid subscription. We won't know until Pandora does it. But instead of doing it, they're taking the pussy route of screwing the content owner saying: We can't get enough money so please let us pay you less for your content.

I don't agree with getting paid less for a premium radio service.

Also, as I recently posted, if Deezer can pay so much more in royalties without complaining - why is Pandora having a problem?

In the end, if Pandora gets their way - I will pull my content, there are other places to put music that pay better with less restrictions without the complaints.

BTW - I championed iTunes. I didn't see it as cheapening music. It changed it for the better in terms of distribution, keeping initial costs of goods down and leveling the field. In case you're not aware, I'm one of the people you should thank for being able to even get on iTunes as a non-signed artist. Thus, it's not wise to lump me in with that mindset you write of. That's being ignorant without knowing why you should thank me. The story about it can be told another time.

The vast majority of YouTube videos don't have ads, and you can skip the vast majority of ads within a few seconds.



What does it matter what the average joe thinks? It's simply not ON DEMAND radio. Period. Nor is it at all like traditional radio for royalty purposes, as I've explained. 100 listeners = 100x simultaneous streams. Traditional radio = infinite listeners = 1 stream.



Again, you're making the baseless assumption that "we won't know" what will happen. I'm sure that Pandora knows. What do you think is harder for them? Trying to lobby to change a law, or adding an extra ad into a stream? If they're anything like every other tech company ever, they've done extensive user testing and determined the optimal number of ads that will retain the most people and generate the highest revenue. I've been listening to Pandora for years and I certainly have noticed the ad frequency changing over time (during aforementioned optimization).



You have absolutely, positively no idea what Deezer's finances are. You don't know how much they are paying out in royalties, in total. Since their service pays out per stream, even if they ARE paying a higher rate (which they might not be), it might be unsustainable as their service userbase grows. Since we have no idea what their financial numbers are, it's impossible to use them as a comparison. What I do know is that Pandora has something like 6x the users of Deezer, so the costs involved are going to be very different.



Yeah, I figured that is how you felt :-) My point was to illustrate that there were people who felt about iTunes exactly how you feel about Pandora. That $9.99 for an album WAS cheapening music, that we must protect $18-20 CD prices at all costs, that everything is going to go to hell if people get used to buying cheaper music... etc. Even though we KNOW it turned out well, people then were making the same arguments you're making now.

The most popular services right now - Pandora and Spotify - are buckling under the pressure of royalties that are simply too high. Even Deezer, from what we can see, and despite it's tiny size in comparison, has been propped up with HUNDREDS of millions of dollars in venture capital. I STRONGLY disagree that we should insist on these high royalties if it means the death of these streaming services, which are currently offering many people a legitimate way to consume music.

Some more numbers for you:

http://paidcontent.org/2011/12/07/419-deezer-goes-boldly-global-thumbing-its-nose-at-u-s/

Deezer's revenue in 2011 appears to be $66.88 million. What their expenses are, we don't know.

http://mediadecoder.blogs.nytimes.c...money-and-then-send-it-off-in-royalties/

Spotify's revenue in 2011 was $236 million, but posted a $57 million loss. Their royalty rate is anywhere from 70% of their revenue to 97%, depending on how you view the numbers.

Pandora earned $275 million in 2011, paying 54% of that in royalties ($149 million).

http://mediadecoder.blogs.nytimes.com/2012/08/29/pandora-posts-a-loss-but-continues-to-expand/

Despite VERY HIGH REVENUE GROWTH, Pandora continues to post a loss. They have yet to make a profit.

If the two top streaming companies are generating massive revenue, but paying the bulk out in royalties and ultimately losing money, that tells us that royalties are TOO HIGH. You point to Deezer, but we have no idea what their financial situation is, other than the fact that their revenue appears to be miniscule in comparison.

To answer your question Everett. The speculation is the type of account that is doing the streaming. The higher stream values come from paid subscription account plays. The lower stream values come from "free" advertising based plays.

As to why there is such a discrepancy between services, that I can not answer. It might have more to do with the deals they strike with each label and the countries laws.

Key thing you mention in that last post Andrew: "How you view the numbers."

Here's one reason why Spotify is likely posting losses: http://www.digitalmusicnews.com/permalink/2012/120806penthouse

Expensive office spaces. Nearly 1/10th of that loss is on one office space. They have 11 around the world. If they're spending this lavishly on all of them, no wonder they're posting losses.

As for Pandora going public having never been in the black on the books, well, that sounds like a money grab by the founders to me. I'm going to agree with Scott on this, it was f'n stupid for them to take the company public. Obviously if they're so amazing in their business acumen, then I bow to their ability to pull the wool over everyone's eyes.

The key thing I learned in doing business is to make a profit with the product you provide. Profit, from everything I learned, is Sales - (Product Cost + Expenses + Time) which had better be greater than 0. No matter how you slice it, if they're operating at a loss with an already discounted Product Cost, then the model is broken. Key point of the entire argument "Discounted Product Cost", asking for an additional discount is being an asshat for not making the model work without a discount.

Everything else above that simple model is hocus pocus. It's the main reason why we're having issues with the economy. Fancy wall street types attempting to twist numbers into such mathematical gook that someone actually believes there's value when there isn't. Growth is magic if the numbers don't add up. Right now, they don't add up. It's not because they haven't already been given a fair deal in the first place.

Curiously, Pandora may have lied on their IPO. They claimed 80 million users, though some claimed 150 million, however, the official numbers were 54.9 million (at the time of the IPO). That can be well over a 1/3 inflation of bullshit value. Somehow they're valued at $2.6 billion - that's significantly higher than some businesses that aren't operating at a loss that have been around for decades. They still haven't turned a profit.

"[$70] Pandora shares could reach that lofty levels if the company adds one commercial per hour to its service and increases its ad rate by about 5% to 8% annually." <-- See, I'm not the only one saying they need to increase their ad rates & frequency, that's a Wall Street Journal spot about Pandora saying the same thing... Dun dun duuuuuunnnnnnnn.

Apparently Pandora released 10% of the stock on the IPO: "The relatively small percentage of stock being sold by Pandora and its early-stage investors in the IPO. Such a small float tends to lead to big first-day pops in a company's stock price, as investors are scrambling for a relatively small number of shares." <-- Again WSJ. As I wrote, it sounds like a money grab by the founders to me. BTW - the IPO was $16 a share in June. Today as of this post it's $8.35 a share. That sure doesn't sound like investor confidence to me. In fact, reports were saying the IPO was overvalued. Hindsight is reflecting that now.

** side note ** The same thing happened for MP3.com on their IPO - I sold out the first day and made 4x my money. Less than a month later the stock completely tanked, never reaching it's first day numbers again. I had numerous friends telling me I was a moron to sell out immediately. But I knew full well MP3.com was a joke and that it was all hype. But I was fortunate to be in on the IPO. **

Another WSJ reader astutely points out something I already pointed out here previously, the royalties do not grow in cost. The royalty rate is a fixed cost based on the account of the user. The more users they have, the more attractive they become to advertisers. Maybe this is why they're inflating their user numbers?

Forbes has this to say: "We believe that Pandora is still overpriced based on fundamentals even with the current user growth trend. Pandora competes with Clear Channel Radio, Spotify which has expanded via Facebook and Sirius XM." Overpriced. Competes with Radio of all kinds. It's not sound fundamentally. And certainly isn't in a class by itself away from radio. So it's not just joe consumer that I talk to making the radio comparison, it's Forbes as well.

p.s. - I don't see Apple asking for additional discounts on the music - in fact iTunes pricing has gone up over time. Not down. Not only that, Apple reduced costs to the content providers - they didn't ask for additional discounts. No duplication = huge savings over time. Mechanicals, and other royalties didn't get reduced, they didn't even get discounted. Apple essentially made it more profitable for the creators of music.

I recommend an 85 % pay cut for Pandora's boss. All in favor . . .

That's an awfully impressive discussion guys! Much smarter than what I have been hearing around the web and from some industry leaders who are befuddled by it all.

Thanks!

Brian

Here's one we haven't mentioned yet: Myspace. They're going on their relaunch right now, with their new look.

Latest royalty garbage from them is: $0.00000000

That's by far and away the lowest royalty I've seen yet. I'm surprised they even decided to show it as a spin.

What's sad about Myspace is that it's got a major investor by a well know musician. The fact that he'd allow this on a service he "owns" is pathetic. That's right, I'm saying that Justin Timberlake allowing this is pathetic. Such an amazing talent allowing this is wrong.

Weird.. I just started watching a movie with him in it.. and he owns myspace now?

The most insightful comment addressed the heart of the issue

Pandora went into business with a flawed business model, now they want revised legislation to make their model work...and because every business is in it to maximize their revenues, the industry is fully on board.

If you are against it, contact your congressman and your senator...and urge every musician you know to do the same...and Brian, if you are against it, lobby yourself.

And musicians, write articles, letters to the editor, and ask your friends to do the same.

The ONLY way to defeat Washington lobbyists is to tell those who depend on your vote that this is your bread and butter issue, and that you will personally ensure this becomes a re election issue.

Mobilize your voices and your collective power.

BTW Brian, although your totally free market model is nice and warm and fuzzy, it would be a nightmare to administer. Why do you think businesses and collectives such as BMI, ASCAP etc, and agencies such as Harry Fox exist?

To answer your question Brian, yes. Justin is now one of the owners of Myspace. Here's a link to a story about it. http://www.guardian.co.uk/technology/us-news-blog/2012/sep/25/myspace-social-media-rebrand

John, thank you for recognizing. I suppose I should post the link to contact your government reps: http://www.capwiz.com/grammy/issues/alert/?alertid=61901131

Let them know you're not happy with this bill becoming a law. Don't be lazy about this.

Giving music away free is also a marketing technique.

one could say "if your music doesnt have any value, then give it away free"

But if nobody knows you, cares about you, has ever heard you, you are never going to get them to buy, especially without ever hearing.

If you were to put your song on youtube, say, this song is featuring Eric Clapton on guitar, then yeah they might buy it.

If you have nothing like that to say, forget it.

I dont mean to undermine anyone, but I include myself in this. the pandora issue is a moot point. It doesn't matter how much percentage of zero they take, it's still zero.

And I think this is the point. The big shots, the 1% of folks who do make money with music, are going to keep making money they will always make money.

The Indie is never going to make much from Pandora, not enough people will buy. If they make a couple hundred bucks lifetime, they are lucky.

U2 once resisted itunes, saying that they didnt like releasing singles because they wrote albums as entire pieces. They changed their mind pretty fast, and not only made more money, but sold more albums because people could hear parts of the album without paying for it.

I think the cat is out of the bag, people want music free, either they come up with a plan to stop it, ie. suing the internet provider for allowing it, or they come up with a model where people can get all music free, and musicians and all the behind the scenes can still make money.

Impossible? Maybe,

I think stealing intellectual property is wrong, but If I werent a musician, I dont think i'd care too much.

If a pay phone in town were rigged to make international calls, and all you had to do is go there and enter a code and talk all you want, everybody would be going there, and not caring if the phone company was losing money.

Anyway, giving away music free is not announcing that your music is crap, Radiohead once told their fans to download it, and pay if you can, or pay whatever you can.

They ended up selling more than had they sold it only.

Only 2/3 of the people that downloaded the "In Rainbows" album paid for it. So technically your assessment is incorrect.

Radiohead haven't done that again.

Trent Reznor went back to a major label this year.

Only short sighted people steal from those who provide goods and services that they consume.

Just a second point. How many here have actually bought music lately? How many songs have you downloaded and paid for?

The only music I have downloaded, is when I get itunes gift cards from friends and relatives. i dont download illegally, I did in it's infancy, but I stopped realizing it was wrong.

But I read these types of arguments many places, and I ask myself how much music they actually bought themselves.

We want to hear a song, we go to youtube, or myspace, we listen and we leave. We are no different than the average listener.

We are just as cheap. They need a fix that solves all, good luck with that though!

And, that means that 1/3 paid for it, as opposed to giving it away free which would have sold how many?

A band like Radiohead has other ways to absorb it, but somebody like yourself who is not going to sell alot, would still be way ahead if 1/3 of the people you gave it away for free to paid for it.

As opposed to zero, or you sister and Aunt Jane.

Me, not even my aunt

If you didnt steal music you must have done something wrong? I dont think they will be making you a saint any time soon, it's only personal because we create music.

I have a niece and nephew who I buy itunes cards for so they wont be tempted to do that.

They tell me most of their friends in school have never bought a single piece of music.

Thats the reality, kids dont even know what its like to buy music.

I still buy CD'S and Vinyl. I'm weird like that..