Pandora wins on appeal. But stay tuned.

This week, the 2nd Circuit Court of Appeals ruled in favor of Pandora, upholding a ruling by Judge Denise Cote in affirming the 1.85 percent of revenue cost set by the rate court as “reasonable.” Maybe, but any way you slice it, songwriters and composers are still getting hosed by streaming services  You’ve probably seen some of the headlines or statements made by songwriters you know saying things like, “20 million plays earned me about two dollars.”  Maybe you didn’t care because you figured the famous person who made that statement was already rich; but setting that logic aside, it ought to be clear that today’s generation of new songwriters and composers will not be building professional careers based on revenue streams that turn millions of plays into pennies.

Music streaming is cool and convenient, but even as the dominant players in the space congratulate themselves for being “innovators,” the reality is that a tiny handful of guys are making millions of contemporary dollars while enjoying the benefit of paying antiquated rates to publishers, who in turn pay songwriters and composers.  This is because ASCAP and BMI (generically called PROs for Performance Rights Organizations), who traditionally negotiate and collect fees on behalf of publishers for public performance licenses are locked into consent decrees whereby a court has set the rate at 1.85 percent of revenue for radio broadcasting.  Spokespeople for ASCAP have consistently pointed out the absurdity that this particular class of artists is more regulated than the corporations that profit by using their work. As such, the PROs back the proposal of the Songwriters Equity Act in an effort to change rate setting to better conform to the new market.

It should be obvious to anyone that a Pandora-like service isn’t exactly radio. The collective earnings of thousands of terrestrial radio stations add up to considerably more than the revenues of a single Pandora.  At the same time, a single Pandora reaches a global audience, even obviating the need for listeners to use terrestrial radio at all.  That’s just technological progress, and nobody hopes or expects to put that genie back in the bottle.  But because the one Pandora is allowed to pay the same percentage of earnings as the collective of all terrestrial stations, that’s the reason millions of plays worldwide translates into pocket change for songwriters and composers.

So, in a nutshell, the appellate court ruled that ASCAP may not raise its rates to new benchmarks that would be aligned with this dramatic shift in the market, and it also ruled that the individual publishers Sony/ATV and UMG may not withdraw only their digital rights from ASCAP  in order to negotiate those specific licenses separately with Pandora.  But consumers should not assume this is a “win” for streaming that will perpetuate their desire to have all the music they want for free for the rest of time.  Because now the major publishers are faced with an all-or-nothing option.  They either leave all their rights with ASCAP and BMI or pull out entirely, which Sony/ATV’s CEO has already indicated may be the response to the courts not allowing them to extricate themselves from the outdated consent decrees. Meanwhile, the Department of Justice is reviewing the consent decrees and may yet recommend that the courts are wrong in their determination that a rights holder may not partially withdraw one of its bundle of rights without withdrawing entirely from the PRO.  Either way, that ruling will likely be the end of that particular debate.

If the larger publishers withdraw from the PROs, they’ll demand higher rates from Pandora no matter what; but attorney and blogger Chris Castle in this post suggests Pandora doesn’t care about that if they can effectively bust the PROs by forcing the big publishers to jump ship and leave the organizations populated with smaller publishers, who have limited bargaining power.  Thus, instead of a system of collective bargaining that represents both large and small publishers, we may see a bifurcated market in which the large players negotiate against one another while the smaller players continue to choke on the crumbs.

There’s no reason to assume this will mean longterm benefits for consumers, either with regard to affordable access or especially with regard to fostering and sustaining the greatest diversity of works.  At the same time, what may happen to public performance licenses other than streaming is unclear.  Presently, your local bar pays an affordable fee to be able to play damn near every song ever recorded, and it pays that fee to no more than three PROs — ASCAP, BMI, & SESAC.  If the major publishers are no longer part of those catalogs, your local bar owner, depending on what music he wants to play as well as other factors like size of the business, may have to pay for all three PRO licenses and also deal with the major publishers, who will be free to charge whatever they want based on any criteria they decide because they are no longer subject to the ASCAP consent decrees.  If nothing else, it sounds like a pain in butt for a small business owner compared to the old system, but it could get rather complicated when you consider the number and types of venues, even websites, around the world that traditionally cover their music needs with one to three blanket license fees.

Whatever is to come, people should be clear that Pandora’s strategy isn’t about consumers, it isn’t about innovation, and it sure as hell isn’t about competition.  Nobody I know dislikes  streaming in principle. What’s not to like?  But it’s not THAT innovative. If you didn’t see it coming at least by the time Napster became a thing, you weren’t paying attention. The companies that have emerged as dominant players in this space aren’t particularly great visionaries; they’re just the guys who were in the right place at the right time to capitalize on a relatively obvious means of distributing music akin to what we historically called “radio.”  So, let’s not beat the word innovation to death when talking about companies like Pandora; and let’s especially not get suckered into thinking this is about competition.

It is the nature of business leaders to want to dominate, which is healthy in a market that doesn’t foster natural monopolies.  Unfortunately, the Internet does foster natural monopolies. Why do you think Google+ couldn’t take, or even share, the market with Facebook?  Because most of us don’t really need two of the same kind of social media environments  in our lives.  Hell, many of us, have to force ourselves to limit the use of just one.  It doesn’t matter how dominant Google is in other areas or how good their programmers are; the Internet generally favors one winner at a time in certain lines of business. And so it may be with music streaming.

On that note, it will be interesting to watch the relaunch of Apple’s entry into the streaming market. Reported to be a subscription-only service, Apple may be in a position to offer the best available terms to all publishers and re-assert itself as the only game in town much as it did with digital downloads in the wake of Napster. Of course that move was directly tied to sales of a little device called the iPod, produced by the company that rules in the arena of attracting customers to new gadgets.  Streaming, of course, isn’t about gadgets, at least it’s not about any one particular gadget.  At the same time, both European and US trade officials are already investigating whether or not Apple is using its still-dominant position in digital downloads as leverage against rivals like Spotify and Pandora.  Sure, but again, I think there are natural reasons why one player at a time will be dominant, regardless of trade regulations.

Whether it’s Pandora, Spotify, YouTube, Apple, or some other company, one downside of digital, worldwide distribution is that consumers may not need more than one service provider when all is said and done. And, if all this is heading toward consolidation of delivery models and consolidation of production models, while limiting the variety of career paths for the next generation of writers and composers, there is no guarantee that either consumers or makers of music are going to win in the long run.  As with other copyrights, the so-called reformers seeking “balance” in the new market are only too happy to leave intact any outdated provisions that favor their own earnings to the detriment of those whose works are essential for their business models to work at all.

© 2015, David Newhoff. All rights reserved.

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19 comments

  • My guess is it is reasonable when compared to what terrestrial radio pays. Pandora also pays significant royalties to performance artists, terrestrial radio does not pay anything, nope, not even a dollar. Before you try to milk Pandora for more money, it might be worth looking into that “minor” discrepancy.

    • I personally support harmonizing performance rights with the rest of the world. But consider what that means – performance artists and songwriters will have to share performance royalties.

    • David Newhoff

      M –

      That rebuttal doesn’t really make a whole lot of sense. All I care about, all anyone should care about, is a sustainable market that fosters new and diverse work. I don’t frankly give a damn if Pandora fails or succeeds, but at present, the company is mostly a cash-cow for a small group of individuals (whose personal wealth doesn’t matter to me at all) and is not necessarily built for sustainability. Their practices are predatory and their PR messages are pure bullshit. So, I don’t really know what it means to say “milk” them for more money. They’re not technically a business worthy of concern yet. And they may never be. So what? Somebody will be.

    • So, I don’t really know what it means to say “milk” them for more money. They’re not technically a business worthy of concern yet.

      Concern to who? You? Artists? Consumers? The government? I’m sure destroying a free service they’ve been using for years will go well with the public. 🙂

      Remember that the whole music business’s value is to play the role of the circuses component of bread and circuses. I’m pretty sure the government is not interested in bankrupting Pandora. The music industry needs enough money to fund sufficient celeb distractions and that’s about it.

      • David Newhoff

        M –

        You can’t possibly address anything by attempting to lump it all together into your generalizations about everything. What the music business is or isn’t, what Congress is or isn’t is wholly irrelevant to this thread. What I mean about Pandora not being worthy of concern is that there is no real economic argument as to why we as a society need to give a shit if it succeeds or fails. Like many SV companies, it’s not a significant economic driver at the moment. Although they say they are as yet unprofitable, the principals are still multi-millionaires, which is a disease in contemporary business that is by no means exclusive to Pandora. Many SV businesses are classic bubbles, built on valuations that are not tied to revenue or capital or even jobs. The “public” may like free stuff, but 1) if Pandora fails, someone else will come along and the public won’t care; and 2) more important, the “public” can shoot itself in the foot loving free stuff without realizing the extent to which that cannibalizes the economy.

        Fundamentally, you’re making a cynical argument for exploitation, which is economically unsustainable, regardless of the industry we’re discussing. And by sustainable, I mean “supports a good quality of life by American standards.” Sure, exploitation abounds on a global scale; sadly, it’s underneath our fingertips right now as you and I type words to one another. But for us to move in that direction domestically is regress not progress.

      • Fundamentally, you’re making a cynical argument for exploitation

        David, you are living in a fantasy land. Everyone exploits others and is exploited by others. We don’t like in a communist fairy land where everyone is equal and fair based on whatever quantitative morality you believe in. It’s those who can hustle better who wins. Been that way for billions of years. Yes, billions.

        When Pandora threatened to shut down a few years ago, guess who they made the threat to? That’s right – Congress. And you know Congress did? Accept Pandora’s conditions. Mind you this was back when Pandora’s popularity was a fraction of what it is today.

        Pandora has all the leverage here because all they need to do is block service for awhile and tell the tens of millions of Americans using their service that it’s Congress’s fault that they had to do this. And we know this already, Congress doesn’t like that kind of attention.

      • David Newhoff

        M –

        Pandora has no real leverage in the big picture. They could die tomorrow, and everyone would migrate to other streaming services. And a year from now, people would say, “Hey, remember Pandora?” “Oh, yeah, those guys.” Yes, exploitation is part of any market. But any resource has a tipping point; exploit it too much, and it goes away.

      • And yes literally the only value the music industry has to the political elite is to satiate and distract the masses. It serves no other purpose. I’m sorry if that’s harsh.

      • David Newhoff

        To be blunt, your statement is to preposterous to be considered harsh. I’d be thrilled if some shill for Silicon Valley would assert that music is exclusively the tool of government to keep people distracted. It would make the pro-artist effort so much easier.

      • M – “When Pandora threatened to shut down a few years ago, guess who they made the threat to? That’s right – Congress.”

        I wish they would play out their bluff already, and shut down… we (songwriters/artists) don’t need them.. they need us, just they have that SillyCon Valley allergy… you know the one, the allergy to paying for labor they exploit. It is not up to Congress to prop up their lack of a business model.

      • I’d be thrilled if some shill for Silicon Valley would assert that music is exclusively the tool of government to keep people distracted.

        You have to remember that M is an ignoramus when it comes to history. What he fails to recall is that the “bread and circuses” were provided free in order to placate the plebs whilst they were being robbed. Its the tech corporations supply of ‘free’ stuff, robbed from the creators, which are the distraction whilst they rob the plebs of their privacy and manipulate them into handing over ever increasing amounts of personal data. At least the Roman Senators coughed up their own cash.

      • I wish they would play out their bluff already, and shut down… we (songwriters/artists) don’t need them..

        You miss the point. The government needs Pandora because the government needs a place for the masses to get free entertainment. Hence why such an ultimatum is actually effective against an entity like Congress.

      • Pandora has no real leverage in the big picture.

        David, I ask you then why did Congress act explicitly to save Pandora’s business in 2008? You will have difficulty finding another circumstance in which Congress acted as swiftly and decisively as they did with protecting Pandora’s business model.

      • Seems to me that various parties were negotiating a deal but were up against some artificial cut-off-date for negotiations and that Congress amended the law to allow any agreement to be reached after the cut-off-date. Is that what you mean? ‘cos it doesn’t sound any where near your claim that they “acted as swiftly and decisively as they did with protecting Pandora’s business model.”

        Indeed some 7 years later and Pandora still doesn’t have a sustainable business model. Some one should ring the neck of that lame duck pretty damn quick.

    • And just to drill the point across. Congress has a 15% approval rate while having a 96% incumbent reelection rate. This is not a government that needs to work for the people. Ever.

      How to maintain power? Bread and circuses. Keep those farm subsidies high and those Taylor Swift singles playing.

  • “20 million plays earned me about two dollars.” Maybe you didn’t care because you figured the famous person who made that statement was already rich; but setting that logic aside, it ought to be clear that today’s generation of new songwriters and composers will not be building professional careers based on revenue streams that turn millions of plays into pennies.

    What is a play worth? Will it ever be enough to make songwriting a viable option for the average creator? Should songwriters get a percentage of sales? Should the distribution system be altered to specifically drive people towards sales as opposed to streams?

    And, if all this is heading toward consolidation of delivery models and consolidation of production models, while limiting the variety of career paths for the next generation of writers and composers, there is no guarantee that either consumers or makers of music are going to win in the long run.

    I think this is very assumptive on your part. People who write songs for others are but one aspect of the industry, are you suggesting composers and songwriters make up the majority of music being created as opposed to artists who write and perform their own works?

    Unfortunately, the Internet does foster natural monopolies. Why do you think Google+ couldn’t take, or even share, the market with Facebook?

    That was never the intent of Google+. Google’s strategy with + was consolodation of service. Bringing several of it’s existing technologies under one roof. They have no need to “compete” with facebook, as their user base already relies on their services for a whole lot more than just social media feeds. Bottom line, Google+ does not necessarily hurt or benefit Google.

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