http://azoz.com/newsarchive/2008/08/pandora.html

Looking in Pandora's Box

by George Ziemann -- August 26, 2008

Tim Westergren, founder of the webcasting service Pandora, recently said, "We're approaching a pull-the-plug kind of decision. This is like a last stand for webcasting." I wasn't able to discuss it at the time but it's too important to let pass unmentioned.

The version I bookmarked is at the Washington Post, and here are a few snippets to sum it up:

* Last year, the Copyright Royalty Board doubled of the per-song performance royalty that Web radio stations pay to performers and record companies. They decided that the fee to play a music recording on Web radio should step up from 8/100 of a cent per song per listener in 2006 to 19/100 of a cent per song per listener in 2010.
* Traditional radio pays nothing in performance royalties. Satellite radio pays 6 or 7 percent of revenue. Webcasters pay per song, per listener.
* It is estimated that XM Satellite Radio will pay about 1.6 cents per hour per listener when the new rates are fully adapted in 2010. By contrast, Web radio outlets will pay 2.91 cents per hour per listener.
* As for Pandora, its royalty fees this year will amount to 70 percent of its projected revenue of $25 million, Westergren said, a level that could doom it and other Web radio outfits. The effect may be even worse for smaller outfits. Many small webcasters have said that the royalties as determined by the copyright board would be 100 percent to 300 percent of annual revenue.

Then we hear from SoundExchange, "the organization that represents performers and record companies." In truth, they collect the webcasting royalties, but they don't represent anyone but the RIAA. And listen to the sad story Mike Huppe, general counsel, has to tell, "Our artists and copyright owners deserve to be fairly compensated for the blood and sweat that forms the core product of these businesses."

Blood? Sweat, okay. I can go with that. But blood?

And it just gets better from there.

"SoundExchange said it supports the higher royalties for Internet radio because musicians deserve a bigger cut of Internet radio profits."

The record labels get 50%, the musicians get 50%. If you raise the rates, there's more money but the musicians' cut (percentage) can only increase by taking money from the labels. Good luck with that.

"SoundExchange officials argue that because different media have different profit margins, it is appropriate to set different royalty rates."

So why don't they set one that won't eliminate the income stream completely? The rate is obviously too high.

"Moreover, they complain, Internet radio stations have done too little to make money from playing their songs."

Seems to me just yesterday that everyone was crying that everyone else was stealing their stuff. Making money off the backs of the artists, you know. Profiting from their blood and sweat.

Now the problem is that they're not making enough money doing it.

One would assume that the webcasters tried to tell them this at the outset. In fact, I'm pretty sure I heard something coming from the webcasting corner back in 2003 to the effect of "We're not making that much money from music" and "This will put us out of business."

So, because there was insufficient money to be gained by the RIAA, a budding communications technology has to die. Can't possibly adjust to a more reasonable rate. You know, "fairly compensated"? That means fair for both parties of the transaction. Anything less than 2.91 cents per listener per hour, and they'd rather have nothing at all, which is what they had in the first place.

They've been litigating this for five years. How many millions of the artists' money have been wasted on "protecting" the artists in this manner? And the lawsuits. And DRM and rootkits.

And for what? What has the RIAA achieved in the past 8 years? Sue the fans, cut the rosters, cut the support staff. Insult the fans, sue the fans, sue some dead people, add DRM, cut the rosters, cut the support staff, rootkits, DRM, "we surrender". Sue the fans, cut the rosters, cut the support staff. New music is illegal unless you paid for it, in which case it can be transferred between 3 select devices, provided you make sure they can phone home one a month and verify your right to possess them.

It seems like maybe they're doing something wrong. Maybe missing a key ingredient to the secret recipe which they once shared, now being paid far too much money to run the industry into the ground.

Good news is, we're more than halfway there.