Business Matters: SoundExchange, The Recording Academy, Pandora Step Up Artist Outreach

SoundExchange and the Recording Academy have emailed their members in response to an artist outreach campaign by Internet radio company Pandora. All parties are jockeying for position ahead of a second attempt at legislation -- last year it was the Internet Radio Fairness Act -- that could lower the per-stream royalty rate paid by Internet radio services.
Each party wants to appear as the more artist-friendly of the two sides to this debate. Pandora is emphasizing the service's considerable promotional value to artists. Although some artists get very little money from streams at Pandora, they benefit from the greater awareness those streams bring. SoundExchange and The Recording Academy portray themselves as having the artist's best interests in mind. A lower per-stream royalty, they argue, would damage a large and growing revenue stream for artists.
Founder and chief strategy officer Tim Westergren's latest email to artists sought signatures for a letter of support for Internet radio from "working musicians" that will be shared with Congress. The petition reads, in part, "Internet radio is young but it is already beginning to really make a difference for us and for thousands of others just like us." Westergren has frequently used email to speak to artists and listeners. His outreach in 2007 drew a great deal of public attention to the Copyright Royalty Board's increase of statutory rates. Webcasters eventually reached a settlement with SoundExchange for lower rates.
Westergren says the company wants to highlight perspectives of independent artists who value the promotion they get from the service. "There is a new generation of thousands of working musicians who rely on a thriving Internet radio industry to find and grow their audiences," he tells Billboard. "These artists enjoy no major label support or broadcast radio promotion."
Pandora also wants to help artists by providing tools to help their careers. And as Billboard reported Tuesday, Pandora is working on an artist dashboard that would let artists see where its songs are being streamed in the country. Many artists have called on services like Pandora to share information on consumer listening in order to take better advantage of their promotional benefits. Pandora would be the first Internet radio service to provide such data to artists.
Music industry groups have reacted swiftly to Pandora's message to artists. SoundExchange emailed artists to inform them about the upcoming legislation and warn the bill seeks to lower statutory royalty rates paid by statutory services. The Recording Academy followed Wednesday with an email from president and CEO Neil Portnow. He also reminded its members that Pandora is seeking lower royalties. It also painted Pandora as an unnecessary recipient of lower royalties by quoting its CFO as saying Pandora "can build a really good company" with the rates established through 2015.
Portnow doesn't buy the reasoning that royalties can be overlooked because artists benefit from promotion. Terrestrial radio has made the same argument against a performance right and royalty for 70 years, he tells Billboard. "It's flawed in its very basis because in a democratic society where there's a free market economy, there is no precedent for an entrepreneur to build a business on the back of another who's created work and not paid a fair price for it."
A large economic incentive exists to win over artists. SoundExchange distributions -- not collections -- in 2012 totaled $462 million, up 58% from 2011 distributions. Pandora, which has yet to turn a profit, paid out $259 million in royalties on $427 million of revenue in the 12-month period ending January 31st. Nearly all of Pandora's royalties went to SoundExchange.