In his editorial in Billboard on Wednesday, Pandora CEO Brian McAndrews writes that this is a transformative period in the music industry. On this we agree. Unfortunately Pandora is transforming the industry into a place where songwriters have no say in how their work is given away, and can barely make a living, all while the streaming giant touts the benefits of giving their music out for free.
Pandora argues that “all evidence indicates that the overwhelming majority of Americans cannot, or will not, pay a monthly subscription fee.” Perhaps one of the reasons many Americans do not pay for music is because Pandora has told them they no longer need to, since Pandora expects songwriters to subsidize its business by paying them almost nothing – and fighting to pay them even less.
How egregious are Pandora’s payments to songwriters? Pandora is proud to point out that they have paid out $1.5 billion in royalties, but what it doesn’t disclose is that only a tiny fraction of that went to the songwriters who made their business possible. Today, while record labels and artists receive around 42% of Pandora’s revenue, songwriters and music publishers get only around 4%. Let that sink in.
Pandora is keeping 54% of its revenue, and sharing only around 4% with the creators who write the songs. That means Pandora believes that delivering songs over an Internet connection is somehow worth more than 13 times the songs themselves. There is no news, no sports, no weather, no comedy – only music. Yet the music creators get less than 5% of the revenue generated from the service.
It is a bold statement for a technology company to tell songwriters that what it is doing with the songwriters’ intellectual property is “good for them” while the songwriters vehemently disagree. Perhaps it should be up to the people who create the music to decide whether giving it away for free is the way of the future. Taylor Swift didn’t think so – which is why she pulled her music from Spotify. But because of how music is regulated by the federal government, Taylor Swift does not have any choice whether her music is given away on Pandora for free.
Swift famously said last year, “I'm not willing to contribute my life's work to an experiment that I don't feel fairly compensates the writers, producers, artists and creators of this music. And I just don't agree with perpetuating the perception that music has no value and should be free.”
The truth is that when it comes to music streaming, subscriptions – even very low-cost ones – are the driving force for profit. Pandora’s paid users account for only 4.9% of listenership, but those 4.9% of users contribute over 20% of Pandora’s revenue. Spotify’s paid users account for 27% of listenership, and that contributes a whopping 91% of its revenue. That is why it was such welcome news when Apple announced that its music subscription service does not have a free tier.
The other benefit Pandora boasts about its “freemium” model is exposure, however songwriters lose there as well. While Pandora claims it has upped ticket sales for touring artists – including those like The Rolling Stones who aren’t exactly struggling – remember that many songwriters who need streaming songwriting royalties to feed their families don’t tour, don’t sell merchandise and don’t sign endorsement deals. Improved ticket sales for artists don't help the songwriters who write their hits, and who need it most.
How exactly does Pandora get away with its “freemium” service, all while pandering to music lovers in Billboard about how this is a good thing? Due to Justice Department regulations called consent decrees put in place during World War II, songwriters are not able to tell Pandora "no." Pandora knows this, and is doing everything it can to keep the status quo. Instead of treating songwriters like business partners, as would happen in a free market, Pandora is actually fighting to reduce the tiny amount it pays songwriters through a three-front attack of litigation, lobbying and legal gimmicks like purchasing an AM/FM radio station in South Dakota to pay even lower royalty rates.
Ultimately, Pandora is correct that the Internet has opened up incredible opportunity for digital music platforms that enhance the industry for artists, songwriters and listeners. However, its defense of their "freemium" model leaves out the fact that it is devastating the songwriting community, which never consented in the first place.
There is a place for ad-supported streaming, subscriptions and other types of monetized music listening, but users should know the facts before listening to Pandora’s spins.
David Israelite is the President and CEO of the National Music Publishers’ Association (NMPA).