|Pandora Radio has been working the DC circuit in the election aftermath, to get music royalties lowered via the Internet Radio Fairness Act, to the dismay of the musicians and songwriters. After all, it's their music that Pandora streams in its interactive streaming radio service. Sound awkward? It is ... but the situation has a deeper context than it seems. To throw fuel on the fire of controversy, 125 artists, many well-known and established names (George Clinton, Billy Joel, Sheryl Crow to name a few, plus groups like SoundExchange, MusicFirst, RIAA and A2IM) have posted an open letter online protesting what they see as a tough environment in the Pandora-Spotify-iTunes world of trying to make a living as a musician. What's going on here?
We have the definition of a new replacement for FM radio. There's been a number of online diatribes about how the new streaming music services aren't paying artists fairly, or enough to make living on. I think they're asking the wrong question.
Streaming music services aren't the replacement to selling music that a lot of people are making them out to be. They're more the equivalent of a new form of radio that can create an awareness of a band's music, than they are a replacement for buying and selling songs.
For those that want to say that streaming "cannibalizes" or prevents people from buying music are simply ignoring any of the music that exists on streaming music services (Pandora, Spotify et al) or on Bit Torrent while still selling many copies of regular and deluxe packages. Sure, there will always be those that take the free route only, but ignoring streaming ignores the best way to get your music in front of the paying people to create awareness.
Plus, people that go for free might not have bought the music in the first place, people will always take for free things that they would never buy. You think it's hard to make money off of streaming music? Try making money by making yourself invisible by NOT being on Spotify or Pandora and see how much harder your situation becomes.
FM radio played this role for decades, creating exposure for music without paying ANY royalties. We're definitely in a period of transition right now, where more people use Spotify and Pandora as free options rather than a paid service. That puts the squeeze on musicians in the transition, but long-term prospects look good. Name any industry that internet isn't putting the squeeze on and redifining the way things happen ... this is what change looks like.
Artists definitely need to get paid, I don't refute that. If they don't make a living, it takes away from their ability to focus on music, because they'll have to get a day job. The challenge today is that streaming music pays artists based on performance, and the shocking surprise to the majority of artists is that their music is not as popular as they once thought it was.
We have two challenges: an overabundance of music for each song to compete with, and the fact that a CD sale doesn't mean that people listened to your music non-stop (it's hard to get used to, I know). How many CDs have you bought for one or two songs, and then stopped listening to those a few weeks after you bought them? The CD demanded a premium price for a few listens. That's not realistic today.
It's also interesting that the majority of names on the list are old school artists that have been around for decades (view the list), from the halcyon days of vinyl and the CD-upgrade era that marked the zenith of the music industry, not normal times (The Doors, REALLY? All of them?) . Those days were marked by unbelievable profits that will take a long time to get back too, if they ever come back. Anyone telling you that will happen is lying just like a politican who tells you that the jobs sent overseas will come back home. Ain't gonna happen, and we all know it.
The letter says that "Pandora is now enjoying phenomenal success as a Wall Street company" and "Skyrocketing growth in revenues and users" just plain ignores reality. Pandora Radio has been beat up by unrealistic Wall Street analyst expectations and suffers a depressed stock price that is currently at $7.23 at the time of publishing (get a fresh quote here). Does that sound like skyrocketing success?
The company suffers from a razor-thin profit margin because the agreements that it signed with major recording labels leave few dollars on the table for Pandora. That means that a lot of money is coming in the door at Pandora and then going right back out the door to pay for the licensing. Pandora isn't keeping it, and their stock price proves that. And yes, I understand that Pandora and Spotify have different licensing models and thus pay differently.
Pandora and musicians have the same frenemy ... a music publishing industry that's still stuck in the last century based on rates and expectations instead of moving forward to today.
Anyone clamoring to define that as normal sounds like someone trying to define the value of their home or unemployment statistics by comparison to 2005. To look at an inflated bubble and clamor for those days and values just ignores reality. Plus, I seem to remember those days as being defined by artists complaining about making pennies on the dollar for selling their recorded music. Do you really want to go back to that?
So do I take a dark and cynical outlook on the future of music? No way, it's just a time of redefinition. Think back to what the beginning of recorded music must have done to create a similar transition. Artists were probably talking up the Victrola and the music recording as a danger to making a living, because they primarily made a living by playing live performances. Who on earth would ever come to see live music when they could just play it whenever they wanted in the comfort of their own home?
We're on the opposite side of that fence now ... after decades of relying on the recording, we need to transition to a model that looks to live performances and new ways for artists to make a living. ADAPT OR DIE ... we all understand this to be the law of the jungle. The internet creates more opportunities for artists, recording labels, marketers, music technology startups and everyone to get in the game ... we should be loving this exciting time of change and getting ahead of the transition rather than trying to cling to the past.
What's your take on this? Is Pandora ripping artists off or should they try to get royalties lowered?