The headlines say the Web radio leader is paying artists big bucks -- not so fast.
When it comes to digital royalties, the devil is in the details.
Pandora founder Tim Westergren continued his campaign for a change in royalty rates on Oct. 9 with a blog post that detailed amounts certain artists have generated on the Internet radio service. Along with similar comments made earlier in the day at the SF Music Tech conference in San Francisco, the post attracted widespread attention to the company's plea. Unfortunately, Pandora's message was easy to misunderstand and occasionally misleading.
When Westergren discusses what artists get paid from activity on the service, he's actually referring to what Pandora pays SoundExchange, the Washington D.C.-based nonprofit organization that collects digital performance royalties for the owners of sound recordings and performing artists. The amount that ends up on a check written to an artist is actually a much smaller figure.
Westergren's point was to emphasize the very real income stream that he believes is jeopardized by a burdensome royalty structure, he told Billboard the following day. But the way his point was delivered ended up giving Pandora much more credit than it deserves.
After his appearance at SF Music Tech, Westergren blogged about the increasingly important role Web radio plays in an artist's career.
The post highlighted some names unfamiliar to most people: gospel singer Donnie McClurkin, rapper French Montana and Mexican group Grupo Bryndis. During the next 12 months, the post claimed, these artists' music will generate performance royalties from Pandora of $100,228, $138,567 and $114,192, respectively. (A Pandora representative confirmed that the amounts are for SoundExchange payments only.)
The actual numbers are less than half of the numbers in Westergren's post.
For example, if Pandora will pay $100,228 in the next 12 months to stream McClurkin's music, only $42,712 will go directly to him as the performing artist. McClurkin has released albums on Warner Alliance, Verity Records and Zomba Label Group. Those labels will split $52,204.
An artist who owned the sound recordings would get both the label and the performing artist share paid to SoundExchange. The examples Westergren gave are all label-affiliated, however.
Royalty payments are matters of details. Readers probably missed Westergren's careful wording. The average reader was left to believe the amounts given were those paid to artists. If the reader didn't have enough knowledge of the compulsory webcasting license to parse the language, the post's title, "Pandora and Artist Payments," probably sent the wrong message.
Reports on some popular technology blogs misinterpreted Westergren's post. Even though these blogs frequently cover the intersections of music and technology, they -- like most people -- are unlikely to spot an error in logic related to Section 114 of the Copyright Act.
Pandora doesn't pay artists -- not directly. Because it takes advantage of the compulsory license for webcasters in Section 114, the company pays all royalties for the performance of sound recordings to SoundExchange.
SoundExchange distributes 50% of net royalties to the owner of the sound recording, 45% to the performing artist and 5% to the session musicians and backup singers. Net royalties are royalties received less SoundExchange's administration fee, which was 5.3% in 2011.
In a conversation about the post, Westergren acknowledged how people might misunderstand its details. The issue to him is that artists are getting paid in the first place. Section 114 guarantees a direct payment to artists from SoundExchange. Direct licenses-he says some of his opponents prefer them over the compulsory license-would require Pandora to pay artists through labels' accounting systems.
"Artists are much better taken care of in a compulsory licensing situation," he said. "Very few people understand that."
Pandora should get credit for a highly effective publicity campaign that got people talking. And, as Westergren noted, even half of some of those figures are still big numbers that are certain to increase as Internet radio grows. But Pandora shouldn't be given credit for money that won't end up in artists' pockets.