[Afforess]

Its easy to complain about the low pandora royalties, but these artists are essentially trying to kill the golden goose. Pandora currently spends > 50% of revenue on royalties. Any increases would almost certainly lead to the end of the company. $0 is a lot less than $1,300 for 1 million plays.

[tveita]

Relevant opinion: http://www.usatoday.com/story/opinion/2013/06/23/pink-floyd-...

> "We've heard Pandora complain it pays too much in royalties to make a profit. (Of course, we also watched Pandora raise $235 million in its IPO and double its listeners in the last two years.) But a business that exists to deliver music can't really complain that its biggest cost is music."

Sounds reasonable enough to me. Do they have any other major expenditures besides hosting?

[smsm42]

This is a set of non sequiturs. First, raising money in IPO doesn't mean business is profitable or even viable - it only means whoever bought the stock think it could be in the future. They may be very well mistaken, especially if conditions change - such as royalties are increased or another regulatory or technological change happens. Increasing listeners also doesn't make it more profitable if they spend a lot of money on royalties - if they pay in royalties and associated costs more than additional listener brings in, more listeners means worse situation, not better. For Pandora's sake we'd hope it is not so, but the increase alone does not contradict Pandora's claim that royalties are too much to make a profit.

Also, Pandora does not complain that their largest expense is music, it complains it is so large that it prevents the possibility of them being profitable. It may be true or untrue, but the opinion in USA Today distorts it. Pandora doesn't claim it doesn't want to pay it all, it just wants to pay so that they still could be profitable.

Additionally, even if Pandora did make enough money per listener, the fact they spend a large portion of their revenue on royalties indicates that if this portion increases, their profit margins will vanish very easily. This is not contradicted neither by size of their IPO nor by number of their listeners, because this is a marginal game, not summary. So their argument is "if royalties increase, we die". The opinion you quote does not refute this. Of course, you could say "ok, so Pandora dies, who cares, good riddance, they should have built their business better" - but that'd be completely different argument. And on this argument one should notice that in this case the authors probably would get $0 royalties for internet performances if no viable business would be possible for it.

[jcampbell1]

From the most recent 10Q. Revenue was $125M ($105 Ads / $20 Subscriber). Expenses: $82M Content, $10M hosting, $7M Prod Dev., $40M Marketing/Sales, $14M All Other. Net Result: $28M loss.

[chiph]

I wonder how much of that marketing costs are from their own interstitial ads between songs? I would think the cost to them is $0, but I wouldn't be surprised if they valued it at market rates. Perhaps to keep the IRS happy.

[jcampbell1]

> I wonder how much of that marketing costs are from their own interstitial ads between songs?

Zero.

Marketing and Sales is primarily the cost of selling advertisements, including all the required employees. Selling $100M worth of ads isn't easy, (unless you are google).

[winterchil]

This would absolutely not make the IRS happy.

[Guvante]

So long as you count it as revenue and aren't publicly traded you are fine.

Pretty sure anyone subject to the real rules is disallowed from doing this thanks to the dot com boom/bust.

[awa]

If they show a expenditure of $40M in MArketing for pandora ads, they are probably adding that $40M to their revenue

[jcampbell1]

You can't do that with public financial statements. When preparing financial statements, there is a process called intracompany balancing, where you pull out any revenue/expenses that were generated within the reporting entity.

If that nonsense was allowed, then every company would show revenues in the billions. The finance department would pay the the HR department for HR services, the marketing department would buy millions with their own company, etc.

It is common for internal accounting books to record these intracompany expenses/revenues for record keeping. For instance a TV Show pays for ads on the same network, but before Disney reports profits publicly all of that accounting cruft must be removed.

[gohrt]

Or they spin off sort-of-separate entities to move the profits around (Hollywood Accounting)

[logn]

I'd argue that rivaling music, pandora's biggest product is their music recommendation system. It's second to none in my opinion. Google has clearly put together a good system too recently with their generated playlists, and last.fm has had similar recommendations. However, as far as a recommendation system that exposes you to new, different music you would have never selected on your own, Pandora makes good choices with surprising accuracy.

Part of that is their Music Genome Project where human beings listened to every song Pandora hosted and rated every aspect of it. I'm sure now they just have a ton of other useful data from listening habits. Regardless, I think the music could almost be seen as secondary.

If all Pandora wanted to do was have me pay $36 dollars for a weekly, automated newsletter telling me of new songs I might like and then collecting my feedback for future newsletters made for me, I'd likely pay for that. They could even alert me to new concerts in my area. Of course, the music streaming ties that all together in a really compelling way.

So, I think if anything you could say that about 50% to musicians and 50% to programmers and staff and overhead sounds about right. Hopefully they manage to eek out a profit to stick around.

They'll be greatly missed if all that's left one day is iHeartRadio and the same old industry pushing the same old method of selecting hits.

Pandora is undeniably a good way to listen to music, and all anyone wants is to ensure they have a fair way to compete.

No one likes seeing artists go hungry. But we all also recognize that if there's anyone being unfair to artists, it's the mega industry from the prior era.

The new industry involves artists owning their work and paying $50/year at TuneCore or similar companies to get their music distributed to companies such as Pandora. Or, they sign up to traditional album sellers like BandCamp or CDBaby. It's simply the most efficient way to do it now.

Absolutely we appreciate the music industry for almost a century of fantastic art and culture. But they either need to adapt or gracefully accept their new role, which is a purveyor of American classics and the niche hype machine for the few mega acts of pop music who actually get good terms on their contracts with major labels.

[whiddershins]

Arguing that high royalties make it hard for Pandora to do business is just bullying and threatening. Obviously if sharing songs via violating copyright weren't an option, listeners would happily pay a little more for Pandora premium or endure a few more commercials.

Instead, the public starts from the stance that music should basically be free, and artists are lucky to be paid anything at all.

The purpose of statutory rates is to create an economic environment where businesses can operate without constant negotiation, and creators can earn a living.

Virtually no one is earning a living from Pandora or Spotify, so, it isn't working. Meanwhile the public has access to a functionally infinite amount and variety of music for nothing, or next to nothing.

[baddox]

> Obviously if sharing songs via violating copyright weren't an option, listeners would happily pay a little more for Pandora premium or endure a few more commercials.

Why is that obvious? If violating copyrights was impossible, I would probably just be exposed to a lot less music, and would thusly end up spending less on music (I pay for iTunes Match, usually spend $50-100 a year on albums, and $100-200 a year on concerts).

[sliverstorm]

Arguing that high royalties make it hard for Pandora to do business is just bullying and threatening.

Oh? If Pandora already spends half its revenues on the music, how is observing that doubling (for example) royalties would cause music costs to eclipse revenues, bullying and threatening? It sounds like Pandora is the one that should feel threatened.

[route66]

Oh, but isn't that just a failure of their business model? If I can only survive by offering cakes for $5 and buying them for $1 the "threat" would be wholly self inflicted (At least, that is the song which is sung on HN to artists, the "too bad your business model sucks")

[sliverstorm]

Yeah, it would be wonderful if all businesses operated with enough profits they could absorb doubled costs, but that isn't generally how it goes.

Wait, no, it wouldn't be wonderful, because then you'd be angry that every company was making 50% net profit off you left and right.

[mikeash]

If wishes were horses, we'd all be eating steak. Talking about "if" something that is true weren't doesn't seem very useful to me here. Illegal music sharing is reality and shows no signs of stopping, or being stopped.

[whiddershins]

I used to believe that, but now I am not as sure.

I'm not sure most average people use bit torrent anymore. And the web is an extremely inconvenient way to try to access illegal content.

[bcoates]

I just ran a little experiment, because I'm out of practice on that sort of thing and too lazy to use anything but Pandora and Rhapsody anymore.

Google searching for 'pink floyd the wall' and clicking the three most obvious links in order gets you a well seeded torrent file. None of the links on the page obviously lead you to somewhere to pay to stream/download the album legally (although there is an iTunes link for the movie at the bottom).

Pirates are still winning on convenience, let alone cost.

[Shinkei]

Are you being serious? Google "Youtube to Mp3" and have fun. The only real dent in piracy I have seen is that I can't find clips from my favorite episodes of The Simpsons and other Fox properties.... which is annoying because I tried to share a funny scene from Bob's Burgers and the clip was simply unavailable... viral advertising anyone? Sure some clips are available on Hulu... the ones they have pre-screened, but not the one I wanted to show. The networks are short-sighted in my opinion.

[lmm]

> I'm not sure most average people use bit torrent anymore.

Yeah, many people don't - because of Pandora and Spotify. Take those away and people will go back to piracy.

[mikeash]

Hit up grooveshark.com and go to town. It has never been easier.

[Dylan16807]

youtube

[cdcox]

According to Pandora about 800 musicians received over 50k a year from them and 2000 received 10k a year. So some people are making a living off Pandora. As Pandora currently has 7% the listeners of radio, it's entirely possible upwards of 10k musicians could make a 'living' off Pandora.

http://blog.pandora.com/2012/10/09/pandora-and-artist-paymen...

[erikpukinskis]

> Obviously if sharing songs via violating copyright weren't an option, listeners would happily pay a little more for Pandora premium or endure a few more commercials.

I don't think that's obvious, I think it's an empirical question. With N subscribers, Pandora currently makes $36 * N per year. If they raise the cost to $50, they'll make $50 * (N - x), where X is the number of subscribers they'd loose.

Of course, all the profit is basically split between the licensors. Pandora currently keeps nothing.

You are suggesting that 50 * (N-x) is "obviously" bigger than 36 * N, but I would suspect that Pandora has already tested it, and $36 provides the maximum possible revenue. If they haven't tested that, they are truly incompetent.

The Pink Floyd article mentions their IPO, but doling out IPO money to licensors is a temporary solution, and probably one Wall Street wouldn't take particularly kindly to. So the choice really is "the current licensing terms, or $0".

[Tobani]

Did any musicians ever make a living off radio?

[dllthomas]

Often the money went the other direction: http://en.wikipedia.org/wiki/Payola

[johnward]

Exactly. People would pay radio stations to break records. Then people would buy those records.

[acjohnson55]

You'd have to be getting an insane amount of airplay indefinitely to make any sort of living.

[whiddershins]

Yes. Entire generations of songwriters made their living from writing songs which were played on the radio.

[Semaphor]

[citation needed]

I'm pretty sure they made the money from selling the music people heard on the radio.

[whiddershins]

downvote me all you guys want. People in the tech community consistently conflate performing artists (bands and stars you recognize) with composers (songwriters, the people creating the intellectual property, and who are most screwed by the modern economy)

a song isn't an advertisement for ANYTHING for the songwriter. It is the entirety of the songwriter's creation. The songwriter does not make a living from t-shirts, ticket sales, endorsements, or hosting a reality TV show.

http://blog.startmysong.com/2010/01/02/songwriting-how-much-...

[belorn]

I downvoted you, because your reply do not include a source that supports the claim that an entire generations of songwriters made their living from radio royalties.

The linked blog do nothing of the sort. It simply state that song writers get in average an $800,000 for radio and TV for a "hit song".

It doesn't say how much is TV vs radio. It doesn't say what a hit song mean, or how many CD's such song will in average sell. It doesn't say what the average number of songs of a singular author is in such CD. It doesn't say what the average income from digital downloads are from producing such hit song, or how it effect sales from the authors other works.

And worst of... Its a blog without any source for its data, and has a disclaimer at the bottom that says: ... the information is the opinion of the author only.

[baddox]

But they make money when the music is sold, which is what Semaphor said.

[smsm42]

Where the $800K for radio/TV performances figure came from?

[whiddershins]

http://www.artistshousemusic.org/articles/making+money+in+to...

[Tobani]

Are they not still making money off the radio?

[winterchil]

They make more from Pandora than they ever did from radio... and their music accesses a larger audience.

[whiddershins]

This is patently untrue.

[jsnk]

It's easier said than done to think that charging more and putting more commercial will still allow Pandora to retain the customers. If rdio, Spotify, Rhapsody all are offering similar service at lower rate, what's to stop the customers from going to other services?

[smacktoward]

Pandora as it operates today is a money-losing enterprise. So assuming those competitors pay the same licensing rates, and barring one of them inventing some genius new revenue stream, the answer to "why won't users just switch to those other services" is that those other services will just go out of business.

[badclient]

Virtually no one is earning a living from Pandora or Spotify, so, it isn't working.

Citation?

[gravitronic]

That's a really shitty golden goose.

[ChuckMcM]

Does that even matter? Since the marginal effort on the part of the performer is exactly zero? (which is to say they don't have to "do" anything to be on Pandora, they just collect checks from BMI/ASCAP). If a musician is arguing that they are being driven into poverty by poor royalties, losing them completely seems to make them worse off.

[gohrt]

Your argument applies retrospectively to past creations, not prospectively to future creations.

Also, eliminating Pandora might (or might not) increase royalties via other media.

[robryan]

I would argue eliminating the streaming services would more likely make the pie smaller. I don't think all the people paying x a month or ads supported are going to suddenly start buying albums.

[toomuchtodo]

Compared to what, FM radio? Which pays NOTHING?

Artists, get over yourself. The market is huge now, and your product value is approaching zero. But keep on flailing in the noose.

EDIT: Half credit. Per dllthomas, "Per the article, FM radio pays royalties to the songwriter but not the performers."

[gravitronic]

FM radio pays royalties.

[dllthomas]

Per the article, FM radio pays royalties to the songwriter but not the performers.

[adrr]

Its reverse. Record industry pays to have their songs played on the air there's even term for it, payola.

[angersock]

Huh, so that's where the term comes from. Interesting.

http://en.wikipedia.org/wiki/Payola

[toomuchtodo]

At my latest gig (new media), my employment agreement actually has a whole section on payola. #TheMoreYouKnow

[jdh]

Plastic goose?

[nedwin]

Spare a thought for Spotify - they are contractually obliged to pay out in excess of 70% of their revenues to the record labels.

[throwaway10001]

Judging by what I have read, Pandora is not making much (if anything) so there's a limit on how much they can pay. Maybe the is not a feasible business model, or maybe someone else--other than the artist--is getting the lion share of the royalties.

[adventured]

It's clearly a feasible business model. They've survived a long time, and haven't bled out. With some strict cost cutting, they can probably break even, and that's more the problem.

To be a prospering model, rather than a struggling one, they might have to raise prices on customers while trying to hold royalty payments to a steady %.

The biggest potential threat to Pandora, other than the labels killing them with royalties, is Apple and Google.