Tag: IRFA

Pandora Isn’t Exactly Struggling

Yesterday, on Capitol Hill, the House Judiciary Committee held a hearing to discuss the Internet Radio Fairness Act, a bill largely backed by Pandora Media, Inc. and opposed by a growing number of musicians and songwriters.  In fact, I recommend Chris Castle’s excellent synopsis of the message taken to The Hill by a handful of songwriters.  If you want legal context for understanding the IRFA, I’ll direct you to Terry Hart’s Brief History of Webcaster Royalties, but if that’s more nitty and gritty than you want to know, consider this:

In defense of Pandora’s position that internet radio services should pay lower license fees to musicians and songwriters in the interest of “fairness,” you’re likely to encounter the bullet point that “Pandora isn’t even profitable yet,” conjuring an image of some fledgling, innovative enterprise trying desperately to survive within an outdated system.  But as a guy who grew up around the motion picture industry, knowing something about the shenanigans of some producers, I know that literal profitability ain’t necessarily the same thing as everybody making buckets of money.

Keeping in mind that Pandora, like so many internet-based services, is basically a means by which software delivers a product that someone else has invested to produce, I had to wonder what kind of costs other than licensing Pandora has to cover while it is supposedly staggering toward profitability. Not surprisingly, according to the income statement on Yahoo Finance, the Operating Expenses shows two lines:  R&D at a mere $130k and Selling General and Administrative at just over $249 million.  This is from January 30, 2012 against revenue of just over $274 million.  Presumably, the cost of licensing music is part of this second line item along with basic overhead like rents, servers, etc.  But the rest is salaries and bonuses.  What else do they have to pay for?

Now, when an ordinary entrepreneur thinks of a business that isn’t profitable yet, he thinks in terms of continually reinvesting in his business, keeping his own and any other founders’ salaries in check while growing that business and pouring in a ton of sweat equity.  It just so happens that this is exactly what a songwriter, performer, or emerging new band does most of the time.  But web entrepreneurs have a history of making money while losing value.  Remember the Dot Com bubble?  There was plenty of loss, but plenty of start-up founders also made out like bandits in the process.  Failing with a few million in one’s pocket would be an artist’s dream because the nature of the work is so fickle, but I digress.

The top five executives at Pandora, not including founder Tim Westergren, earn combined salaries of just under $3 million, although CTO Thomas Conrad had exercised stock options of $5.9 million as of the January 30 report.  Mr. Westergren is worth an estimated $100 million.  According to Pandora’s own statements, it paid “50% of its revenue in fees” last year.  Assuming this is true, that’s $137 million, plus the $3 million in top executive salaries, plus some unknown number to Tim Westergren, but let’s estimate that there’s at least $100 million or so left for other expenses, including the salaries of 530 employees.  Divided evenly, which of course it is not, that would be annual salaries of over $180k per employee.

So, there is a world of difference between a company being profitable and those in the company making lots and lots and lots of money.  If Pandora fails because, as it claims, the licensing fees are unfair, then many people involved with the company will walk away having failed upward.  Meanwhile, it won’t take long for a new internet radio service to appear — one that can be profitable without exploiting the people and companies who make the real investments in the products that make radio function in the first place.

SOPA didn’t matter. What’s next?

That SOPA had little to no measurable effect on the election results in Congress is not surprsing. While the online protest against the bill was an unprecedented moment for the Internet industry and social media, I believe the reality is that the average voter actually didn’t give a damn about SOPA or even know what it was. Of course, I have already asserted on numerous occasions that the majority of Web users who clicked on the online petition against the bill didn’t know what they were protesting either, but I won’t retread that ground here.

Presumbably, Internet issues will gain footing among the electorate as the Millenials age into the process. They already outnumber the Boomers, many who are still figuring out how to use AOL; and they way outnumber us meager and motley GenXers, who are net-savvy but still lived half our lives without these technologies. I am eager to read Chris Ruen’s new book Freeloading, but my understanding is that Ruen asserts that we see these tools, social media in particular, as extensions of ourselves. I tend to agree with this premise, and it stands to reason that a generation born using these technologies is going to have an even stronger association in this regard. Hence any threat, real or perceived, to these tools and media is going to be taken personally; and as the manipulators of politics know, it is emotion not reason that tends to win the day.

Still, I don’t believe it is inevitable that the Internet industry will be able to replay the same charade indefinitely that it did so well with SOPA/PIPA. In particular, the veneer that all web-based companies are the guardians of free speech will likely begin to wear thin among progressives, traditionally the voters with whom such a message tends to be effective. In the months since the defeat of SOPA, we have seen the formation of a lobbying juggernaut called the Internet Association; we have the disturbing, anti-labor components of the Pandora-backed Internet Radio Fairness Act; and we have more than a few privacy concerns with regard to how Internet companies collect personal data and how that data is used.

Combine these manifestations with the generally libertarian (at times Ayn Rand-like) ideology of Silicon Valley, and progressive voters may start to make that critical distinction between the products and the the producers — between the tools we like, or even need, and the corporate practices of those who make the tools. It’s true that if one crticizes Google, Facebook, Pandora, et al, this will often result in some reactionary response involving accusations like “technology luddite,” but such fallacious reasoning brings a very simple example to mind. Several years ago, General Electric was locked in an ongoing battle with envrinomental groups and the EPA over its disposal of PCBs into the Hudson River. At the same time, the company’s national consumer-focused ad campaign was a neo-Rockwellian vision of the world with the slogan “We bring good things to life.” And yes, a refridgerator is a good thing, as are all the jet engines that ever carried us safely from point to point around the world. But that doesn’t mean we’re okay with the PCBs in the river, does it now?

It will certainly be interesting to see how these dynamics play out over the coming year, but as a progressive, I found it telling (and more than a little pitiful) that on election eve, Google co-founder Sergey Brinn went out of his way to state publicly he was “dreading the elections” because party politics will still dominate and that his plea to either victor is to “govern as an independent.” Call me a cynic, but when a billionaire executive, who practically rules the Web, makes an ambiguous political statement I can hear from any Joe on the street, my Spidey Sense tingles.  If progressives listen carefully, they will hear the familiar refrain an anti-institutional song coming from Northern California that is more reminiscent of the Tea Party hymnal than anything else.

What’s the deal with the IRFA?

Photo by JGroup

Musician David Lowery, founder of Cracker and Camper Van Beethoven, has become one of the most vocal defendants of artists’ rights in the digital age. A co-founder of The Trichordist, Lowery and his colleagues write some very detailed, professional assessments of the state of the music industry since digital file sharing, streaming, and purchasing have become a reality.

Presently under fire by Lowery and others is a bill called the Internet Radio Fairness Act, which appears, for now, to benefit one company — Pandora.  I haven’t had a chance to read the bill yet, but analysis from a few sources sounds an awful lot like new-era business seeking a very old-school model for profitability — free labor.  To the generalist glancing at some post about the IRFA on social media, it sounds progressive and reasonable, namely the headline that states “the Internet Radio company wants to pay the same rates as terrestrial radio.”  No surprise, it ain’t that simple. In addition to Lowery’s piece, I would read some of the analysis by Chris Castle, who has been following the details fairly closely.

The most disconcerting criticisms I’ve read is that the bill is a union buster, designed to weaken or destroy the collective bargaining rights of artists. One paragraph in the bill is particularly troubling:

 “Nothing in this paragraph shall be construed to permit any copyright owners of sound recordings acting jointly, or any common agent or collective representing such copyright owners, to take any action that would prohibit, interfere with, or impede direct licensing by copyright owners of sound recordings [including artists who own their own sound recordings] in competition with licensing by any common agent or collective, and any such action that affects interstate commerce shall be deemed a contract, combination or conspiracy in restraint of trade in violation of section 1 of the Sherman Act (15 U.S.C. 1).’.  [For which there are both civil and criminal penalties.]”

Like I say, I haven’t had a chance to read the bill in full yet, and I’m not a lawyer.  What I do know is that Internet companies do not deserve a free pass when it comes to the question of influence peddling. If Pandora cannot turn a profit without a law that strips artists of collective bargaining rights, then so long Pandora.  It wasn’t that long ago when industrialists claimed they could not build important infrastructure without treating American workers like virtual slaves.  The right to bargain for the value of one’s work cannot be recast in this technological era as a barrier to the innovation of entertainment any more than it ought to have been claimed as a barrier to building a railroad over a century ago.  And considering how often the Internet industries cry foul every time a member of the creative community goes to Washington, this bill sounds more hypocritical and lopsided than it does “fair.”