October 10, 2012
SoundExchange has received quite a few questions relating to Pandora’s recent blog post, “Pandora and Artist Payments.” The post seems to convey the impression that artists are raking in millions of dollars from their Pandora streams. While we wish this were the case, these numbers do not reflect the reality for most artists represented by SoundExchange. Although in 2011 we paid out more than $292 million in digital royalties to recording artists and record labels, approximately 90 percent of annual payments to artists were $5,000 or less. In other words, not only are multiplatinum artists paid by SoundExchange, but also those “working class” musicians that very much rely on digital radio as a growing revenue stream. In fact, these working artists represent the vast majority of our artist payments.
SoundExchange cannot speak to Pandora’s calculations or report the exact figures of what we have paid to individual artists (without their permission). However, the specific figures reported in Pandora’s blog post appear to not be historic payments, but instead seem to reflect a projection of what Pandora may pay for those artists’ recordings in the future. Regardless, the blog post suggests that the artists receive 100 percent of the royalties that Pandora pays. That’s typically not the case. In fact, the statutory license that SoundExchange administers ensures that royalties are split to provide for multiple individuals involved on a sound recording. The owner of the sound recording receives 50 percent and 5 percent is shared with the session musicians and backup singers also on the recording. That leaves 45 percent for the featured artists. And to be clear, it also does not account for our 5.3 percent administration fee, one of the lowest in the industry (For more information see recent Billboard article).
While Pandora’s blog post touts how much it pays artists, it ends advocating for a rate standard that would drastically lower the rates it pays to artists. SoundExchange supports the current standard, where artists receive the fair market value for their recordings – not a subsidized, discounted rate that forces artists and copyright owners to fund Pandora’s growth. This is particularly true when you consider that Pandora’s fees are already incredibly low. Currently, the 2012 per-performance rate for Pandora’s free service is $0.0011 per performance, or 1.65 cents per listener per hour. At that rate, a consumer could listen to Pandora 40 hours a month, for 12 months, and Pandora’s royalty load for the sound recordings would still be less than $8 per listener, annually. That’s approximately 500 hours of the user’s time that Pandora is getting for $8 per year.
And even if some top artist receive significant payments as a result of Pandora’s service, what’s wrong with that? By Pandora’s own numbers, it is expected to earn nearly half a billion dollars in the twelve months ending in January 2013 and continue to grow its user base. Why shouldn’t the artists named in Pandora’s blog post (and those that were left unnamed for that matter) share in the rewards of the growth of digital music listenership?
And the digital radio industry is growing, not contracting. There are now more than 1,800 digital radio services in existence today that are taking advantage of the low content usage rates that statutory license that SoundExchange administers. That’s proof positive that others are finding a way to make their business models work under the current content rates.
It’s true that as digital radio continues to grow, so does the amount that performing artists and rights owners receive for the use of their content. We’re proud to support this growth, and it’s our hope that Internet radio platforms like Pandora continue to thrive. But the company can’t cut costs at the expense of musicians. It’s simply unfair.