8 ms·

Its easy to complain about the low pandora royalties, but these artists are essentially trying to kill the golden goose. Pandora currently spends > 50% of reven

Its easy to complain about the low pandora royalties, but these artists are essentially trying to kill the golden goose. Pandora currently spends > 50% of revenue on royalties. Any increases would almost certainly lead to the end of the company. $0 is a lot less than $1,300 for 1 million plays.

tveita 13y ago
Relevant opinion: http://www.usatoday.com/story/opinion/2013/06/23/pink-floyd-royalties-pandora-column/2447445/ http://www.usatoday.com/story/opinion/2013/06/23/pink-floyd-... > "We've heard Pandora complain it pays too much in royalties to make a profit. (Of course, we also watched Pandora raise $235 million in its IPO and double its listeners in the last two years.) But a business that exists to deliver music can't really complain that its biggest cost is music." Sounds reasonable enough to me. Do they have any other major expenditures besides hosting?
- jcampbell1 13y ago
  From the most recent 10Q. Revenue was $125M ($105 Ads / $20 Subscriber). Expenses: $82M Content, $10M hosting, $7M Prod Dev., $40M Marketing/Sales, $14M All Other. Net Result: $28M loss.
  - chiph 13y ago
    I wonder how much of that marketing costs are from their own interstitial ads between songs? I would think the cost to them is $0, but I wouldn't be surprised if they valued it at market rates. Perhaps to keep the IRS happy.
    - awa 13y ago
      If they show a expenditure of $40M in MArketing for pandora ads, they are probably adding that $40M to their revenue
      - jcampbell1 13y ago
        You can't do that with public financial statements. When preparing financial statements, there is a process called intracompany balancing, where you pull out any revenue/expenses that were generated within the reporting entity. If that nonsense was allowed, then every company would show revenues in the billions. The finance department would pay the the HR department for HR services, the marketing department would buy millions with their own company, etc. It is common for internal accounting books to record these intracompany expenses/revenues for record keeping. For instance a TV Show pays for ads on the same network, but before Disney reports profits publicly all of that accounting cruft must be removed.
        gohrt 13y ago
        Or they spin off sort-of-separate entities to move the profits around (Hollywood Accounting)
        epa 13y ago
        Not allowed. Any related parties have to be disclosed and will be removed on consolidation of financial statements. Unless both parties are totally separate entities with no relation, we are moving into fraud territory.
        tsotha 13y ago
        That only works between entities in different countries, though they can use the strategy to dodge liabilities.
    - jcampbell1 13y ago
      > I wonder how much of that marketing costs are from their own interstitial ads between songs? Zero. Marketing and Sales is primarily the cost of selling advertisements, including all the required employees. Selling $100M worth of ads isn't easy, (unless you are google).
    - winterchil 13y ago
      This would absolutely not make the IRS happy.
      - Guvante 13y ago
        So long as you count it as revenue and aren't publicly traded you are fine. Pretty sure anyone subject to the real rules is disallowed from doing this thanks to the dot com boom/bust.
- logn 13y ago
  I'd argue that rivaling music, pandora's biggest product is their music recommendation system. It's second to none in my opinion. Google has clearly put together a good system too recently with their generated playlists, and last.fm has had similar recommendations. However, as far as a recommendation system that exposes you to new, different music you would have never selected on your own, Pandora makes good choices with surprising accuracy. Part of that is their Music Genome Project where human beings listened to every song Pandora hosted and rated every aspect of it. I'm sure now they just have a ton of other useful data from listening habits. Regardless, I think the music could almost be seen as secondary. If all Pandora wanted to do was have me pay $36 dollars for a weekly, automated newsletter telling me of new songs I might like and then collecting my feedback for future newsletters made for me, I'd likely pay for that. They could even alert me to new concerts in my area. Of course, the music streaming ties that all together in a really compelling way. So, I think if anything you could say that about 50% to musicians and 50% to programmers and staff and overhead sounds about right. Hopefully they manage to eek out a profit to stick around. They'll be greatly missed if all that's left one day is iHeartRadio and the same old industry pushing the same old method of selecting hits. Pandora is undeniably a good way to listen to music, and all anyone wants is to ensure they have a fair way to compete. No one likes seeing artists go hungry. But we all also recognize that if there's anyone being unfair to artists, it's the mega industry from the prior era. The new industry involves artists owning their work and paying $50/year at TuneCore or similar companies to get their music distributed to companies such as Pandora. Or, they sign up to traditional album sellers like BandCamp or CDBaby. It's simply the most efficient way to do it now. Absolutely we appreciate the music industry for almost a century of fantastic art and culture. But they either need to adapt or gracefully accept their new role, which is a purveyor of American classics and the niche hype machine for the few mega acts of pop music who actually get good terms on their contracts with major labels.
- smsm42 13y ago
  This is a set of non sequiturs. First, raising money in IPO doesn't mean business is profitable or even viable - it only means whoever bought the stock think it could be in the future. They may be very well mistaken, especially if conditions change - such as royalties are increased or another regulatory or technological change happens. Increasing listeners also doesn't make it more profitable if they spend a lot of money on royalties - if they pay in royalties and associated costs more than additional listener brings in, more listeners means worse situation, not better. For Pandora's sake we'd hope it is not so, but the increase alone does not contradict Pandora's claim that royalties are too much to make a profit. Also, Pandora does not complain that their largest expense is music, it complains it is so large that it prevents the possibility of them being profitable. It may be true or untrue, but the opinion in USA Today distorts it. Pandora doesn't claim it doesn't want to pay it all, it just wants to pay so that they still could be profitable. Additionally, even if Pandora did make enough money per listener, the fact they spend a large portion of their revenue on royalties indicates that if this portion increases, their profit margins will vanish very easily. This is not contradicted neither by size of their IPO nor by number of their listeners, because this is a marginal game, not summary. So their argument is "if royalties increase, we die". The opinion you quote does not refute this. Of course, you could say "ok, so Pandora dies, who cares, good riddance, they should have built their business better" - but that'd be completely different argument. And on this argument one should notice that in this case the authors probably would get $0 royalties for internet performances if no viable business would be possible for it.
throwaway10001 13y ago
Judging by what I have read, Pandora is not making much (if anything) so there's a limit on how much they can pay. Maybe the is not a feasible business model, or maybe someone else--other than the artist--is getting the lion share of the royalties.
- adventured 13y ago
  It's clearly a feasible business model. They've survived a long time, and haven't bled out. With some strict cost cutting, they can probably break even, and that's more the problem. To be a prospering model, rather than a struggling one, they might have to raise prices on customers while trying to hold royalty payments to a steady %. The biggest potential threat to Pandora, other than the labels killing them with royalties, is Apple and Google.
gravitronic 13y ago
That's a really shitty golden goose.
- jdh 13y ago
  Plastic goose?
- ChuckMcM 13y ago
  Does that even matter? Since the marginal effort on the part of the performer is exactly zero? (which is to say they don't have to "do" anything to be on Pandora, they just collect checks from BMI/ASCAP). If a musician is arguing that they are being driven into poverty by poor royalties, losing them completely seems to make them worse off.
  - gohrt 13y ago
    Your argument applies retrospectively to past creations, not prospectively to future creations. Also, eliminating Pandora might (or might not) increase royalties via other media.
    - robryan 13y ago
      I would argue eliminating the streaming services would more likely make the pie smaller. I don't think all the people paying x a month or ads supported are going to suddenly start buying albums.
- toomuchtodo 13y ago
  Compared to what, FM radio? Which pays NOTHING? Artists, get over yourself. The market is huge now, and your product value is approaching zero. But keep on flailing in the noose. EDIT: Half credit. Per dllthomas, "Per the article, FM radio pays royalties to the songwriter but not the performers."
  - gravitronic 13y ago
    FM radio pays royalties.
whiddershins 13y ago
Arguing that high royalties make it hard for Pandora to do business is just bullying and threatening. Obviously if sharing songs via violating copyright weren't an option, listeners would happily pay a little more for Pandora premium or endure a few more commercials. Instead, the public starts from the stance that music should basically be free, and artists are lucky to be paid anything at all. The purpose of statutory rates is to create an economic environment where businesses can operate without constant negotiation, and creators can earn a living. Virtually no one is earning a living from Pandora or Spotify, so, it isn't working. Meanwhile the public has access to a functionally infinite amount and variety of music for nothing, or next to nothing.
- jsnk 13y ago
  It's easier said than done to think that charging more and putting more commercial will still allow Pandora to retain the customers. If rdio, Spotify, Rhapsody all are offering similar service at lower rate, what's to stop the customers from going to other services?
  - smacktoward 13y ago
    Pandora as it operates today is a money-losing enterprise. So assuming those competitors pay the same licensing rates, and barring one of them inventing some genius new revenue stream, the answer to "why won't users just switch to those other services" is that those other services will just go out of business.
- Tobani 13y ago
  Did any musicians ever make a living off radio?
  - dllthomas 13y ago
    Often the money went the other direction: http://en.wikipedia.org/wiki/Payola http://en.wikipedia.org/wiki/Payola
    - 13y ago
nedwin 13y ago
Spare a thought for Spotify - they are contractually obliged to pay out in excess of 70% of their revenues to the record labels.

tveita 13y ago

Relevant opinion: http://www.usatoday.com/story/opinion/2013/06/23/pink-floyd-royalties-pandora-column/2447445/ http://www.usatoday.com/story/opinion/2013/06/23/pink-floyd-... > "We've heard Pandora complain it pays too much in royalties to make a profit. (Of course, we also watched Pandora raise $235 million in its IPO and double its listeners in the last two years.) But a business that exists to deliver music can't really complain that its biggest cost is music." Sounds reasonable enough to me. Do they have any other major expenditures besides hosting?

jcampbell1 13y ago
From the most recent 10Q. Revenue was $125M ($105 Ads / $20 Subscriber). Expenses: $82M Content, $10M hosting, $7M Prod Dev., $40M Marketing/Sales, $14M All Other. Net Result: $28M loss.
- chiph 13y ago
  I wonder how much of that marketing costs are from their own interstitial ads between songs? I would think the cost to them is $0, but I wouldn't be surprised if they valued it at market rates. Perhaps to keep the IRS happy.
  - awa 13y ago
    If they show a expenditure of $40M in MArketing for pandora ads, they are probably adding that $40M to their revenue
    - jcampbell1 13y ago
      You can't do that with public financial statements. When preparing financial statements, there is a process called intracompany balancing, where you pull out any revenue/expenses that were generated within the reporting entity. If that nonsense was allowed, then every company would show revenues in the billions. The finance department would pay the the HR department for HR services, the marketing department would buy millions with their own company, etc. It is common for internal accounting books to record these intracompany expenses/revenues for record keeping. For instance a TV Show pays for ads on the same network, but before Disney reports profits publicly all of that accounting cruft must be removed.
      - gohrt 13y ago
        Or they spin off sort-of-separate entities to move the profits around (Hollywood Accounting)
        epa 13y ago
        Not allowed. Any related parties have to be disclosed and will be removed on consolidation of financial statements. Unless both parties are totally separate entities with no relation, we are moving into fraud territory.
        tsotha 13y ago
        That only works between entities in different countries, though they can use the strategy to dodge liabilities.
  - jcampbell1 13y ago
    > I wonder how much of that marketing costs are from their own interstitial ads between songs? Zero. Marketing and Sales is primarily the cost of selling advertisements, including all the required employees. Selling $100M worth of ads isn't easy, (unless you are google).
  - winterchil 13y ago
    This would absolutely not make the IRS happy.
    - Guvante 13y ago
      So long as you count it as revenue and aren't publicly traded you are fine. Pretty sure anyone subject to the real rules is disallowed from doing this thanks to the dot com boom/bust.
logn 13y ago
I'd argue that rivaling music, pandora's biggest product is their music recommendation system. It's second to none in my opinion. Google has clearly put together a good system too recently with their generated playlists, and last.fm has had similar recommendations. However, as far as a recommendation system that exposes you to new, different music you would have never selected on your own, Pandora makes good choices with surprising accuracy. Part of that is their Music Genome Project where human beings listened to every song Pandora hosted and rated every aspect of it. I'm sure now they just have a ton of other useful data from listening habits. Regardless, I think the music could almost be seen as secondary. If all Pandora wanted to do was have me pay $36 dollars for a weekly, automated newsletter telling me of new songs I might like and then collecting my feedback for future newsletters made for me, I'd likely pay for that. They could even alert me to new concerts in my area. Of course, the music streaming ties that all together in a really compelling way. So, I think if anything you could say that about 50% to musicians and 50% to programmers and staff and overhead sounds about right. Hopefully they manage to eek out a profit to stick around. They'll be greatly missed if all that's left one day is iHeartRadio and the same old industry pushing the same old method of selecting hits. Pandora is undeniably a good way to listen to music, and all anyone wants is to ensure they have a fair way to compete. No one likes seeing artists go hungry. But we all also recognize that if there's anyone being unfair to artists, it's the mega industry from the prior era. The new industry involves artists owning their work and paying $50/year at TuneCore or similar companies to get their music distributed to companies such as Pandora. Or, they sign up to traditional album sellers like BandCamp or CDBaby. It's simply the most efficient way to do it now. Absolutely we appreciate the music industry for almost a century of fantastic art and culture. But they either need to adapt or gracefully accept their new role, which is a purveyor of American classics and the niche hype machine for the few mega acts of pop music who actually get good terms on their contracts with major labels.
smsm42 13y ago
This is a set of non sequiturs. First, raising money in IPO doesn't mean business is profitable or even viable - it only means whoever bought the stock think it could be in the future. They may be very well mistaken, especially if conditions change - such as royalties are increased or another regulatory or technological change happens. Increasing listeners also doesn't make it more profitable if they spend a lot of money on royalties - if they pay in royalties and associated costs more than additional listener brings in, more listeners means worse situation, not better. For Pandora's sake we'd hope it is not so, but the increase alone does not contradict Pandora's claim that royalties are too much to make a profit. Also, Pandora does not complain that their largest expense is music, it complains it is so large that it prevents the possibility of them being profitable. It may be true or untrue, but the opinion in USA Today distorts it. Pandora doesn't claim it doesn't want to pay it all, it just wants to pay so that they still could be profitable. Additionally, even if Pandora did make enough money per listener, the fact they spend a large portion of their revenue on royalties indicates that if this portion increases, their profit margins will vanish very easily. This is not contradicted neither by size of their IPO nor by number of their listeners, because this is a marginal game, not summary. So their argument is "if royalties increase, we die". The opinion you quote does not refute this. Of course, you could say "ok, so Pandora dies, who cares, good riddance, they should have built their business better" - but that'd be completely different argument. And on this argument one should notice that in this case the authors probably would get $0 royalties for internet performances if no viable business would be possible for it.

throwaway10001 13y ago

Judging by what I have read, Pandora is not making much (if anything) so there's a limit on how much they can pay. Maybe the is not a feasible business model, or maybe someone else--other than the artist--is getting the lion share of the royalties.

adventured 13y ago
It's clearly a feasible business model. They've survived a long time, and haven't bled out. With some strict cost cutting, they can probably break even, and that's more the problem. To be a prospering model, rather than a struggling one, they might have to raise prices on customers while trying to hold royalty payments to a steady %. The biggest potential threat to Pandora, other than the labels killing them with royalties, is Apple and Google.

gravitronic 13y ago

That's a really shitty golden goose.

jdh 13y ago
Plastic goose?
ChuckMcM 13y ago
Does that even matter? Since the marginal effort on the part of the performer is exactly zero? (which is to say they don't have to "do" anything to be on Pandora, they just collect checks from BMI/ASCAP). If a musician is arguing that they are being driven into poverty by poor royalties, losing them completely seems to make them worse off.
- gohrt 13y ago
  Your argument applies retrospectively to past creations, not prospectively to future creations. Also, eliminating Pandora might (or might not) increase royalties via other media.
  - robryan 13y ago
    I would argue eliminating the streaming services would more likely make the pie smaller. I don't think all the people paying x a month or ads supported are going to suddenly start buying albums.
toomuchtodo 13y ago
Compared to what, FM radio? Which pays NOTHING? Artists, get over yourself. The market is huge now, and your product value is approaching zero. But keep on flailing in the noose. EDIT: Half credit. Per dllthomas, "Per the article, FM radio pays royalties to the songwriter but not the performers."
- gravitronic 13y ago
  FM radio pays royalties.

whiddershins 13y ago

Arguing that high royalties make it hard for Pandora to do business is just bullying and threatening. Obviously if sharing songs via violating copyright weren't an option, listeners would happily pay a little more for Pandora premium or endure a few more commercials. Instead, the public starts from the stance that music should basically be free, and artists are lucky to be paid anything at all. The purpose of statutory rates is to create an economic environment where businesses can operate without constant negotiation, and creators can earn a living. Virtually no one is earning a living from Pandora or Spotify, so, it isn't working. Meanwhile the public has access to a functionally infinite amount and variety of music for nothing, or next to nothing.

jsnk 13y ago
It's easier said than done to think that charging more and putting more commercial will still allow Pandora to retain the customers. If rdio, Spotify, Rhapsody all are offering similar service at lower rate, what's to stop the customers from going to other services?
- smacktoward 13y ago
  Pandora as it operates today is a money-losing enterprise. So assuming those competitors pay the same licensing rates, and barring one of them inventing some genius new revenue stream, the answer to "why won't users just switch to those other services" is that those other services will just go out of business.
Tobani 13y ago
Did any musicians ever make a living off radio?
- dllthomas 13y ago
  Often the money went the other direction: http://en.wikipedia.org/wiki/Payola http://en.wikipedia.org/wiki/Payola
  - 13y ago

nedwin 13y ago

Spare a thought for Spotify - they are contractually obliged to pay out in excess of 70% of their revenues to the record labels.