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<h1 class="title-news"> Pandora Goes After Artist Royalties In Big
Risk </h1>
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<p> <span class="posted-and-updated"> Posted: <span
itemprop="datePublished">12/04/2012 6:19 pm EST</span>
Updated: <span itemprop="dateModified">12/04/2012 6:34 pm EST</span>
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<p>WASHINGTON -- Since Pandora launched its Internet radio service
in 2007, it has grown from a startup facing near-bankruptcy to a
leader of the digital streaming market. With more than 60 million
users in the past month, the company is now estimated to be worth
billions, with revenue doubling every year. "On the growth side,
it's been a wonderful story," founder Tim Westergren <a
href="http://www.youtube.com/watch?v=CvFuMhbU_8g"
target="_hplink">declared at a recent conference</a>. "Our
listenership just keeps exploding, and so does our revenue."</p>
<p>It's quite a success for a company that sold itself as an
artist-friendly, transformational force that didn't just make
radio cool again, but also offered -- through royalty fees -- a
potential path to prosperity for musicians who've seen physical
record sales plummet. Westergren is a musician himself, and takes
pride in championing indies and majors alike. <a
href="http://www.pandora.com/" target="_hplink">Pandora</a> uses
an algorithm that essentially modernized the much beloved
free-form radio formats of the 1960s and '70s.</p>
<p>But Pandora has come to see its <a
href="http://www.reuters.com/article/2012/08/30/us-pandoramedia-shares-idUSBRE87T0TX20120830"
target="_hplink">dominant market share</a> not as an
against-all-odds triumph, but as a burden. The more successful it
became, the more money it paid musicians in royalties. Lowering
its rate, the company has argued, would make it easier for
Internet radio companies to thrive, theoretically providing more
ways for artists to get compensated. Last week, Pandora CEO Joe
Kennedy <a
href="http://judiciary.house.gov/hearings/Hearings%202012/hear_11282012.html"
target="_hplink">appeared at a hearing</a> on Capitol Hill in
support of the Internet Radio Fairness Act, or IFRA, which would
lower the amount of royalties that Pandora and other Internet
radio services pay to artists. The industry has estimated the act
would allow Pandora to reduce payments to artists by as much as 85
percent.</p>
<p>The company has been spending big to make its case in Washington.
Pandora <a
href="http://www.opensecrets.org/orgs/summary.php?id=D000055195"
target="_hplink">dished out</a> $180,000 on lobbying in 2011 and
$160,000 in 2012, according to the Center For Responsive Politics.
For much of its <a
href="http://www.opensecrets.org/lobby/clientsum.php?id=D000055195&year=2012"
target="_hplink">lobbying this year</a>, the company retained
TwinLogic Strategies, <a
href="http://www.opensecrets.org/lobby/firmsum.php?id=D000063803&year=2012"
target="_hplink">whose other clients</a> include Amazon,
Chevron, Motorola and Yahoo.</p>
<p>During the past election cycle, Westergren <a
href="http://www.opensecrets.org/usearch/index.php?q=Tim+Westergren&searchButt_clean.x=0&searchButt_clean.y=0&cx=010677907462955562473%3Anlldkv0jvam&cof=FORID%3A11"
target="_hplink">donated more than $65,000</a> to candidates, a
PAC and state Democratic Party organizations, including $2,000 to
Rep. Jason Chaffetz (R-Utah), who introduced the Internet Radio
Fairness Act. Westergren also has given thousands of dollars in
campaign contributions to members of the House Judiciary
Committee, which could help steer legislation friendly to Pandora.</p>
<p>But all of Pandora's lobbying in support for the bill has
antagonized musicians, and lawmakers. If it's not careful,
industry insiders said, Pandora could end up jeopardizing their
business.</p>
<p>"Pandora has to be applauded for doing such great work to grow
the webcasting marketplace," said Casey Rae, deputy director of
the<a href="http://futureofmusic.org/" target="_hplink"> Future of
Music Coalition</a>. "Over the years it's been pretty clear
there's been major benefits to musicians. … When you are looking
at IRFA and the potential effects -- the sheen starts to come off
a bit."</p>
<p>The bill has attracted a We-Are-The-World collection of foes,
with musicians, unions and industry executives joining forces.
More than 100 artists and musicians across all major genres -- <a
href="http://www.spin.com/articles/rihanna-brian-wilson-everyone-suddenly-mad-at-pandora"
target="_hplink">including big-name stars</a> like Katy Perry,
Rihanna and Cee Lo Green -- <a
href="http://www.latimes.com/entertainment/music/posts/la-et-ms-pandora-congress-irfa-musicians-letter-protest-20121114,0,775927.story"
target="_hplink">signed an open letter</a> in Billboard magazine
in November opposing Pandora and the Internet Radio Fairness Act.
The <a
href="http://thehill.com/blogs/hillicon-valley/technology/267053-naacp-blasts-pandora-backed-internet-royalty-bill-"
target="_hplink">NAACP</a> has also attacked the bill. Pandora's
push seems to have stripped the company of a lot of the goodwill
it had built within the industry and put the spotlight on its
balance sheets. Musicians argue that Pandora already pays them a
pittance.</p>
<p>"When you do the math, it's horrifying for an artist," Eric
Hilton, who runs <a href="http://www.eslmusic.com/#%21/about"
target="_hplink">ESL Music</a> and is one half of the band
Thievery Corporation, told The Huffington Post in an email.</p>
<p><a
href="http://survivingthegoldenage.com/interview-laura-ballance-of-superchunk/"
target="_hplink">Laura Ballance</a>, co-founder of one of the
most successful indie labels, <a
href="http://www.mergerecords.com/" target="_hplink">Merge
Records</a>, whose roster includes bands such as Arcade Fire,
the Magnetic Fields and Spoon, said she isn't happy with Pandora's
current rate either. "It should be higher," she told HuffPost. "It
doesn't make me feel badly for [Pandora] at all that they should
be paying out half of their revenue or more to artists -- that is
entirely how their revenue is generated."</p>
<p>At the hearing last week before the House Subcommittee on
Intellectual Property, Competition and the Internet, Jimmy Jam,
the famed R&B producer and songwriter, calculated that for
every spin of a song on Pandora, the copyright holders and
musicians get just one-tenth of one cent.</p>
<p>"Put another way, the listener would have to hear that song on
Pandora every single day for nearly two years to equal the
payments" from one digital purchase on Amazon, Jimmy Jam said. He
noted that for each 99-cent download on Amazon, the company pays
about 70 cents to rights holders and creators.</p>
<p>Lawmakers on the committee questioned whether royalty rates were
the real problem, pointing out that traditional FM/AM stations pay
no royalties to performers at all. Rather than lowering the rates
that Pandora pays, some congressmen proposed that getting
terrestrial radio stations to pay up could be part of a fairer,
more comprehensive solution. Others suggested that Pandora might
need to fix its business model and perhaps sell more ads.</p>
<p>"We need to find a solution that brings together all stakeholders
and ensures that we are not back here in another year adjusting
the rates again and inserting ourselves into the market," Rep. Jim
Sensenbrenner (R-Wis.) said in an e-mail statement to HuffPost
after the hearing.</p>
<p>But Kennedy, Pandora's CEO, maintained that the solution is to
lower the rates his company pays to artists, telling HuffPost that
the company is not interested in lobbying radio to start paying
royalties. "We don't have a dog in that fight," he said. "We think
it's important that Internet radio not be held hostage to that
issue."</p>
<p>Pandora's legislative push has exposed the company as far short
of the transformational force it has hoped to be. It may have a
musician as a founder, but it's still a publicly traded company
with shareholders to please. The company, critics said, seems less
inclined to revolutionize the music business than to enhance its
stock price.</p>
<p>"These are all investment bankers," said <a
href="http://goldve.com/#tabs-about" target="_hplink">Danny
Goldberg</a>, a veteran manager and former label executive with
Warner and Atlantic. He said Pandora is no different than
industry's heavyweights. "They are all cut from the same cloth,
which is fight for any penny. … I don't know where the
self-righteousness comes from."</p>
<p>"Maybe Pandora's business doesn't work," Goldberg said. "That's
okay. There's no inherent moral right to have a business plan
work."</p>
<p>If <a
href="http://www.google.com/finance?q=NYSE%3AP&ei=j3y-UJizFq2v0AHhbA"
target="_hplink">Pandora's business model</a> is going to work,
it needs musicians and record labels to buy in and supply it with
content. Having a deep catalog of music is essential for any
digital music startup looking to attract users (and venture
capital funding). A lower royalty rate could mean a smaller
catalog. "I think that some artists and musicians would indeed
pull out of the company if Pandora manages to get the rate
lowered," Ballance said.</p>
<p>If Pandora's users start finding that their favorite bands aren't
available through the radio service, they may migrate elsewhere.</p>
<p>At least for now, the vast majority of artists do not have the
rights to pull their songs from Pandora. But as they sour on the
Internet radio service, they are starting to search for
alternatives. Damon Krukowski, a member of indie icons Galaxie 500
and Damon & Naomi, began streaming his music for free at his <a
href="http://galaxie500.bandcamp.com/" target="_hplink">own site</a>
partly in response to what he considered to be Pandora's and
fellow Internet music service Spotify's paltry royalties. He
detailed his decision in a <a
href="http://pitchfork.com/features/articles/8993-the-cloud/"
target="_hplink">Pitchfork essay</a>, which became something of
a sensation.</p>
<p>"The reaction [to the essay] has been a surprise to me, just in
that there was so much of it," Krukowski told HuffPost. "I didn't
break any news -- those royalty rates have been discussed before.
... I'm always glad to share information and ideas with other
musicians. In my experience, we depend on one another for that
kind of help. Who else can we ask about that kind of thing, other
than one another?"</p>
<p>All the uncertainty in the digital realm reminded Krukowski of
being a young indie rocker in the 1980s, when putting out an album
and organizing a tour required a pioneering spirit. "There's no
normal again," he explained. "I don't think anybody has an answer.
I don't think it's necessarily a bad thing. It might just get very
creative."</p>
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