I use Pandora and love the product. But every time I see this commercial with Tim Westergren where he states that the royalty system for internet radio is "deeply unfair" I can't help but wonder why he believes that to be true.
Where is it written that all distributors should pay the same price for their wares? Wal-Mart pays Proctor and Gamble a significantly lower cost than small grocers. Why? Because Wal-Mart, quite frankly, has P&G by the balls. Yet Wal-Mart is the source of more revenue for P&G than any other distributor, so they earn the right.
Now I realize that Pandora is the exact opposite- the distributor has no leverage, but I believe the same principle applies. There is absolutely no reason that distributors should be treated equally. Competition varies widely across different distribution channels. If Pandora can't operate at a profit, I don't believe it is incumbent on the artists to make way for their sustainability.
What you're failing to realize is that the per-stream fee that Pandora pays is exclusive to net broadcasters. Everyone else pays a percentage of revenue that is a manageable 7-8% for performance fees, and another 5.5% for publishing. Pandora's highly risky, per-stream fee is a number pulled from the asses of the RIAA and has no basis in the reality of what the music might be worth in advertiser dollars.
Why is $0.002 a fair price to pay each time you play a song? Where did that number come from? Why would Pandora pay this, but Sirius not?
When the largest, most efficient net broadcaster, after 11 years and over $300M in projected 2012 revenue, cannot optimize their way out of a -14% margin, what mathematical justification is there for this $0.002 figure?
The number is supposed to be based on a "willing seller, willing buyer" calculation based on the market rate of what companies are willing to pay, and yet the only rates that were allowed into these discussions were the mandated rates by the copyright royalty board - not the rates that independent labels might offer, or the companies that had royalty-free agreements, like ours (www.earbits.com).
You will be hard pressed to find a person more pro-artist than me, but the per-stream rate of $0.002 makes zero sense, if a per-stream rate makes any sense at all. Asking for neutrality across platforms seems more than fair.
The real reason the labels don't want to budge with Pandora is simple. The royalties go to SoundExchange, and then get distributed directly to artists - most of them unrecouped by their record labels. Labels want to destroy anybody whose royalties don't go through their accounting department, where they can file them away under unrecouped and keep every penny the artists deserve. That is the real reason for this battle.
I think you're reading past the point of the parent comment which is that the owners have right to charge whatever they want, even if it's unaffordable.
Music royalty rates are not set by Congress. The Copyright Royalty Board sets rates for compulsory licensing. These are licenses copyright holders have to agree to for certain uses.
Nothing stops Pandora from negotiating regular licenses with content producers. Pandora doesn't do it because they'd get a worse deal that way.
The royalty rates are controlled by Congress precisely to allow for services like Pandora to exist until the internet music market can reach bargaining parity on par with other music markets (i.e., radio, etc.) Without those rate limits, the RIAA would charge many multiples of the current royalty rates.
Where is it written that all distributors should pay the same price for their wares? Wal-Mart pays Proctor and Gamble a significantly lower cost than small grocers. Why? Because Wal-Mart, quite frankly, has P&G by the balls. Yet Wal-Mart is the source of more revenue for P&G than any other distributor, so they earn the right.
Now I realize that Pandora is the exact opposite- the distributor has no leverage, but I believe the same principle applies. There is absolutely no reason that distributors should be treated equally. Competition varies widely across different distribution channels. If Pandora can't operate at a profit, I don't believe it is incumbent on the artists to make way for their sustainability.