Chip Shots by Chip Griffin

Pandora Should Pay Up

I’m a big fan of Pandora. I listen to it on my computer, my Sonos, and my iPhone. It provides a fantastic service.

But … I can’t go along with the whining and moaning Pandora and others are doing about Internet royalty rates for music. Though it is a weekend, this Saturday’s article in the Washington Post still touched off another round of griping in the tech blogosphere, including a broadside from TechCrunch’s Michael Arrington. Some have even suggested that Pandora should be the sacrificial lamb in the battle against royalty fees, arguing that artists should view Internet radio as a favor to them and they should be grateful for the attention.

Rubbish, my friends. Artists deserve to be compensated when you play their works in their entirety. It’s not as if Pandora and other Internet radio stations/podcasts simply play a 10-20 second snippet of a song and then link to a purchase option. Then you might be doing the artist a favor.

To suggest, as some have, that the royalty rate should be even lower than it is today — or even non-existent — is simply ludicrous.

The bottom line is that companies like Pandora have a revenue problem, not an expense issue. Less than three cents per listener per hour simply shouldn’t be a heavy lift. Perhaps online users need to get over their mentality that everything should be free or ridiculously cheap. Someone has to pay for these services, and if advertisers aren’t interested in stepping up, then users will have to pay.

People like Internet radio because of the lack or infrequency of commercial advertising. While we would all like to build businesses with minimal expenses, the reality is that it costs money to provide a service of any kind. The media business, in particular, is one that traditionally has fairly high content acquisition costs.

It’s time for Pandora to find advertisers to support its cost structure — or ask listeners to pay more. The $36 I pay each year for Pandora is a small price to pay for highly customized, ad-free radio service. It’s just $3 per month. Certainly it would be worth at least $6 per month if it needed to double to come in line with the increased royalty fees.

If users are not willing to pay the three cents per hour in royalty fees, then perhaps there’s not a real business here. Stop blaming the artists who seek to be compensated. Blame the Internet business mentality that minimizes the importance of revenue to growing companies.

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  1. I’d have to agree with you that Pandora has had a free ride for a while. They should have to play royalties just like any traditional radio station.
    However, I think that the whold independent artists royalties via SoundExchange is garbage. College radio stations have been playing royalty free independent music for years. If an artist chooses not to be a part of the RIAA, that should be their option.
    Imagine that CustomScoop started providing free, ad-supported accounts. If Rupert Murdoch sent you a bill for every source accessed, even those not owned by him, I bet that both the software industry and the newspapers would have a problem with it.

  2. Fair point, but CustomScoop actually sends traffic to Murdoch’s sites directly. In fact, one NEEDS to go to those sites directly to get the information provided. CustomScoop merely serves as a pointer to the original content.
    By contrast, Pandora PROVIDES the complete original content. If CustomScoop wanted to provide complete articles, rather than serving as a vertical search engine, we certainly would likely have an obligation similar to Pandora and Internet radio. (Frankly, I’d be happy if there were something similar to SoundExchange for print media so that we could easily meet licensing requirements to do just that. Currently it would seem to require agreements with each individual media outlet, which is far too burdensome. Imagine how fast Pandora and the others would be out of business if they had to negotiate with every band they wanted to play.)
    Also, I take no position as to how independent musicians are compensated. That’s something well out of my scope of expertise at the moment.

  3. The theory that artists deserve to be compensated is a noble one. The reality though is that its not the artists pushing Pandora, or other internet radio/streaming solutions, its the major labels. The labels are the ones who have no true digital strategy. Because of their lack of forethought and vision, they use litigation and demand unrealistic feeds to kill every innovative idea that could help bring their artist’s music into the new millennium. Don’t forget these are the same labels that required Microsoft to pay them for every Zune sold. That’s the same as NBC asking TV manufactures to pay them for every TV sold.
    Thus, in my book, supporting this initiatives to require higher online fees is really throwing your support to the major labels and their antiquated ideas, instead of giving your support to new and innovative technology.

  4. The labels may well be stupid, but they have a right to be compensated. And even make “unreasonable” demands. Nobody is forcing anyone to pay them — if you don’t want to pay, go out of business. I’m just saying that Pandora should be able to generate sufficient revenue to cover those costs and thus stay in business. The fact that they don’t want to create potential revenue isn’t the labels’ problem.
    I’m all in favor of innovation, I just bristle at the sense of entitlement that many tech companies and evangelists feel.

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