Actually, that's not very accurate. Those performance royalties are paid to SoundExchange, a non-profit assigned to distribute the royalties to the artists. The whole reason the labels hate Pandora is because it's the only massive service paying hundreds of millions of dollars directly to the performers, without filtering it through the labels' accounting departments.

That's correct, Pandora pays SoundExchange the statutory Interactive Streaming rate for the sound recording rights. SoundExchange in turn pays the appropriate rights holder. This might be an artist, directly, but often it's a record label. The labels don't like the revenue flowing through SoundExhange because the process is transparent to their artists. Which means they can't hide the money.

Pandora also pays the publishers for the performance right, separately from SoundExchange. This can be a fixed percentage of revenue. Societies like ASCAP, BMI, and SESAC generally administer the rights on behalf of the publishers.

Lastly, Pandora also pays Harry Fox Agency the statutory rate for the mechanical rights. HFA in turn pays the song writers.

Here's a good breakdown from an old and entertaining (view comments) TuneCore blog post: http://blog.tunecore.com/2012/03/the-additional-10-5-spotify...

Technically it's non-interactive streaming, hence no on demand play, restrictions on how many times an artist is played and the skipping restrictions.

Yes, you're 100% right. Typo. Too late to correct. Should read, "Pandora pays SoundExchange the statutory Non-Interactive Streaming rate for the sound recording rights."

Does Pandora have to pay mechanical rights to Harry Fox Agency? I thought that only applied to downloads (non-streaming).

Pandora pays for mechanical rights, but it's a lower rate than Spotify pays, for instance.

Check out TuneCore's Music Industry Survival Guide. It's a useful resource.

http://www.tunecore.com/guides/sixrights

Edit: I'm wrong (and so is Tunecore). Parent is partially correct, Pandora does not pay for mechanical rights. They qualify as a PurePlay Webcaster. However, Interactive Streaming services, such as Spotify, do have to pay mechanicals in addition to recording and performance.

For those of us not used to reading something like this, can you explain? Is the RIAA somewhere in here: "Selling/General/Admin. Expenses, Total"?

I downloaded their detailed income statements[0]. The Google Finance income statement appears to be wrong. Google's income statements imply royalties of less than 8.5%.

In their latest quarter (Q2 FY2013) "Cost of Revenue" made up $68,036,000 on revenue of $101,267,000. Of that, "Content acquisition costs" were $60,522. That means royalties make up a whopping 60% of all revenue. They're not making a profit and have lost money in FY2012 and FY2011.

0. http://investor.pandora.com/phoenix.zhtml?c=227956&p=iro... (see Historical Financials).

A few weeks back Google Finance was reporting GOOG's own earnings incorrectly. Most people with interest in such things recommend avoiding it like the plague

> That means royalties make up a whopping 60% of all revenue.

Is that surprising? I'd imagine inventory makes up more than that of Amazon's revenue. Both are in the business of selling stuff made by other people. They help you find what you want, sure, but they're distributors.

I see from that report they have 589 employees. Why do they need so many?

They have zero profit, so you could argue any single cost is taking away "all their profits". But I'm probably missing a more insightful point - maybe that the RIAA engineers the situation so that their margin is ~0.

Apple gets 30% from their music sales, and that still doesn't leave them with much. Let's just say the labels leave Pandora, Spotify and others with a lot less than 30%, which makes it very hard for them to operate their business, and if these services can't be sustainable and eventually start dying out, it will all because of the labels.

Which, of course, would be perfectly fine with the labels.