IRFA

Pink Floyd parrots record industry talking points for anti-Pandora tirade in USA Today

Monday, June 24, 2013 - 3:50pm

The three surviving members of rock royalty Pink Floyd attacked leading webcaster Pandora today for its efforts to reduce its music licensing costs in USA Today.

An op-ed from the band seems mostly constructed around oft-repeated talking points from the RIAA and music industry lobby group musicFIRST.

After the record industry corralled recording artists for its campaign to stop the "Internet Radio Fairness Act" (more here) in the last Congress, Pandora began to reach out to artists for support. The webcaster hopes to show Congress that there are recording artists who value Pandora as a promotional vehicle, and understand that royalty relief may be vital to its survival.

Again, using the well-worn tropes of earlier music industry efforts, Pink Floyd characterizes Pandora's efforts as an attempt to "trick artists" in their efforts to "slash royalties." Even the peril of an "85% artist pay cut," and the accusation that Pandora wants "growth of its business directly at the expense of artists' paychecks," are nearly word-for-word rehash of SoundExchange press releases.

One more-interesting sentiment from the band's op-ed: They want Pandora's help to get them royalties from AM/FM radio.

"Artists would gladly work with Pandora to end AM/FM's radio exemption from paying any musician royalties," Pink Floyd wrote, in apparent belief that webcasters' lobby on Capitol Hill could achieve something the record industry's can't.

Read Pink Floyd's op-ed in USA Today here.

House Judiciary chairman promises copyright law hearings

Friday, April 26, 2013 - 11:05am

House Judiciary Committee Chairman Bob Goodlatte (pictured) says he'll lead his panel to "conduct a comprehensive review of U.S. copyright law over the coming months," likely (at least partially) in response to Register of Copyrights Maria Pallante's copyright reform (reported in RAIN here). Goodlatte spoke at the World Intellectual Property Day at the Library of Congress.

"The goal of these hearings will be to determine whether the laws are still working in the digital age," Goodlatte said.

Among other issues, "there are concerns about statutory license and damage mechanisms. Federal judges are forced to make decisions using laws that are difficult to apply today. Even the Copyright Office itself faces challenges in meeting the growing needs of its customers - the American public."

Last year Utah Rep. Jason Chaffetz (R), a member of the Judiciary Committee, introduced the Internet Radio Fairness Act (read more in RAIN here). A companion bill was introduced to the Senate by Oregon Senator Ron Wyden (D). The bill calls to change the legal standard by which judges determine the statutory royalty rate for streaming radio. The royalty rates for most other, related uses of copyright sound recordings use the standards set in section 801(b) of the Copyright Act. The 1998 Digital Millennium Copyright Act made an exception for Internet radio, requiring rates to be set to what the judges felt a hypothetical "willing buyer and willing seller" would agree. The law would bring Internet radio in line with media like cable- and satellite radio, requiring rates to be set along 801(b) guidelines.

The bill has yet to be re-introduced to this year's Congress.

Read more in The Verge here.

Industry expert MacDonald figures nearly half of SX's $502 million revenue was Pandora royalties

Thursday, April 4, 2013 - 12:30pm

According to a guest columnist in Audio4cast today, nearly 50% of the over half a billion dollars SoundExchange collected from services last year came solely from Pandora!

SoundExchange is the music industry body that collects and distributes royalties for the digital use of copyright sound recordings. When services like webcasters, satellite radio (SiriusXM), cable radio (Music Choice), and business establishment services (DMX) perform copyright sound recordings, they pay SoundExchange, which then distributes money to copyright owners (labels) and performers.

SoundExchange last week released its 2012 financial report (here), revealing it had collected $502.2 million total from services last year (up 35% from 2011's $372.2 million). Digital media attorney Angus MacDonald compared the SoundExchange report with Pandora's most recent 10-K filing (here) and concludes that the top webcaster alone accounts for all of SoundExchange's 2012 revenue growth.

"Pandora paid 55.9% of its revenues to SoundExchange for the fiscal year that ended January 31, 2013," MacDonald wrote in Audio4cast today. "Pandora’s total revenues last year were $427.1 million. Based on the above figures, Pandora paid SoundExchange over $238.7 million ($427.1 million multiplied by 55.9%)" in that fiscal year. "That $238.7 million figure represents 47.53% of SoundExchange’s total royalty revenues ($502.2 million) in 2012," says McDonald.

Pandora paid about $132 million more for royalties in 2012 than in 2011. So while SoundExchange's collections increased by $130 million in a year, that means Pandora completely footed that increase (and a little more). MacDonald also points out that Pandora's FY 2013 royalty bill ($238.7 million) was close to its total revenue for the previous year ($274.3 million for FY 2012).

Pandora strongly backs legislative efforts (such as the Internet Radio Fairness Act, more here) to reform the process that determine royalty rates, in the hopes of decreasing that obligation. Recording industry groups like SoundExchange and the RIAA have strenuously opposed such efforts.

"With Pandora’s ever-surging listening hours and royalty payments, SoundExchange (as well as the record labels and artists who split the royalties collected by SoundExchange) need a healthy Pandora as much as Pandora needs a reasonable Pureplay-like rate for the next royalty term (2016-2020)," MacDonald concluded.

RIAA CEO Cary Sherman recently told The Verge's Greg Sandoval, "Access models" (industry terminology for services that license digital recordings, like Pandora, but also Spotify and YouTube) "are our present and our future... [This] underscores how vital it is to protect these increasingly important revenue streams."

Read MacDonald's guest column in Audio4cast here.

The RIAA issued its revenue report recently which showed $462 million of its 2012 digital revenue -- about 45% -- came from non-interactive digital services like Pandora and SiriusXM (see more in RAIN here).

NAB reportedly focusing on freshmen House members in royalty fight

Monday, March 25, 2013 - 1:15pm

On Friday we addressed the topic of broadcast radio and royalties, and the real possibility that the matter is the top sticking point for Internet radio's efforts to "normalize" what it pays to use copyright sound recordings (see Friday's RAIN here).

Inside Radio says the National Association of Broadcasters (NAB) is focusing on freshmen House members in its lobby for support of the anti-royalty resolution, the Local Radio Freedom Act ("That Congress should not impose any new performance fee, tax, royalty, or other charge relating to the public performance of sound recordings on a local radio station."). Of 109 House members who've signed on, many are newly elected members.

What's more, apparently Virginia NAB member stations have met with House Judiciary Committee chairman Bob Goodlatte (who represents that state, pictured). Any bill on this matter would most likely have to get through Goodlatte's committee (The House Judiciary's subcommittee on Courts, Intellectual Property and the Internet held a hearing on the Internet Radio Fairness Act in November that was almost completely taken over by music industry advocates' calls for a broadcast royalty, in RAIN here).

Goodlatte himself says he advocates royalty "fairness" and want to work towards new legislation as a solution to the matter of royalties for broadcast radio. Read more from Inside Radio here.

Some lawmakers won't hear webcasters' pleas while AM/FM is exempt from royalties

Friday, March 22, 2013 - 1:05pm

What if the most significant obstacle to Internet radio's efforts for royalty relief is broadcasters' fight against on-air royalties?

When the Internet Radio Fairness Act was given a hearing by the relevant House Subcommittee in November (RAIN coverage here), the bill itself got very little attention. Instead, music industry witnesses and sympathetic lawmakers steered the converstation nearly entirely to AM/FM's exemption from paying sound recording royalties. The message: Until radio pays, webcasters' obligation will not change.

The IRFA has yet to be re-introduced since the new Congress began. What has been introduced in the new Congress is the Local Radio Freedom Act. It's a resolution "That Congress should not impose any new performance fee, tax, royalty, or other charge relating to the public performance of sound recordings on a local radio station." The resolution now has the support of 105 House members and four Senators. While it's not actual legislation, it's still a line drawn in the sand and shows how these lawmakers lean.

In the past, lots of webcasters felt broadcasters were pitted against them. Online only radio providers assumed broadcast groups wanted to maintain the competitive edge that the royalty inequality gave them. It's now obvious that most broadcasters seem to understand the potential, if not the current value, of webcasting, and understand their businesses will become more and more reliant on the Internet as time passes. Some (Clear Channel, Entercom) have even struck deals with record labels which will have them pay royalties for on-air use of those labels' music in exchange for online royalty discounts. Some broadcasters support the IRFA (some publicly, some more indirectly).

It's clear the strong broadcast industry is a vital ally to webcasting.

Webcasters need some reform (the IRFA or something else) that would afford webcasters to pay something less than 60% (like Pandora did last quarter) or more of their revenues in royalties to operate. But is it possible to achieve this, independent of efforts to impose a sound recording royalty on radio? Will broadcasters need to choose between fighting royalties for on-air, and attempts to control royalties online? 

At RAIN Summit West, April 7 in Las Vegas, we'll feature a panel called "The Song Plays On" to take up the ongoing Internet radio royalty discussion. It'll be moderated by the industry foremost authority on webcasting royalty and legal issues, David Oxenford. Panelists Brad Prendergast of SoundExchange, BMI's David Levin, artist Patrick Laird, TAG Strategic's Ted Cohen, and SomaFM's Rusty Hodge will all their views on this issue to the table. Register for RAIN Summit West here (and look in your RAIN daily e-mail for a discount code!).

Pandora chief Kennedy will stay on until company finds his replacement

Friday, March 8, 2013 - 6:10pm

Longtime Pandora chairman, CEO, and president Joseph Kennedy will step down, the leading webcaster announced late yesterday.

Kennedy will stay on in his current capacities until his successor is named. Pandora's Board of Directors has formed a search committee and is hiring a search firm to identify likely replacements.

Kennedy, who has led Pandora since July 2004, said, "I am incredibly proud of the team and what we have accomplished in redefining radio."

Under Kennedy's leadership, Pandora became far-and-away the leader in Internet radio, with over 67 million monthly active listeners, and the largest radio presence in nearly every major U.S. market, with over 8% of total U.S. radio listening. Pandora now has a sales presence in over 28 major markets.

In fiscal 2013, the company earned $427.1 million in total revenue, and $255.9 million in mobile revenue.

RAIN Analysis: I believe that Joe has done a terrific job for Pandora over the past decade, building it to point where Pandora is the leading brand of radio in virtually every U.S. market -- including what I believe calculates out as a commanding lead in the P18-34 demo in each market.

On the other hand, the medium of Internet radio continues to be challenged by a difficult regulatory environment, due to a poorly-worded royalty rate-setting standard in 1998's DMCA, leading to Copyright Royalty Board judges continuing to set royalty rates, with every one of their decisions, that would bankrupt most of the industry (and require emergency Congressional action each time to fix. Fortunately, as you know, there's a movement underway in Congress -- with bills that were introduced last year in both the House and Senate -- that will hopefully fix that rate-setting standard).

Because Joe has had to compete with other forms of digital radio -- satellite and cable -- that pay only 8-15% of their revenues in royalties (while he's had to pay over 50%), he's been constrained in what he could spend on building his sales force and doing traditional advertising for his product. Given those constraints, I believe his performance has been extremely impressive.

By the time Joe retires from the company, Pandora will probably have close to a 10% share of radio listening in every U.S. market, and has almost single-handedly made "personalizable radio" the clear future of music radio in the U.S. and probably the world, with benefits for consumers, musicians, and advertisers. That's a pretty good accomplishment! -- KH

To illustrate Kurt's point regarding Pandora's royalties in relation to its revenue, take a look at the following chart. It's from Statista (here), and is based on Pandora's recently-announced fiscal 2013 earnings (h/t to Hypebot). It clearly shows that Pandora's content acquisition costs (royalties) are growing faster than its otherwise impressive revenue increases.

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