Let’s Pay Music Artists Less – The Fight for Internet Radio Fairness Ain’t Done Yet

by Keith Hatschek on January 17, 2013 · 49 comments

in Business Forum,Fast Forward

Late last year, at the urging of Pandora radio and other tech industry players, Congressman Jason Chaffetz (R-Utah) and Jared Polis (D-Colo.) co-sponsored the Internet Radio Fairness Act (IRFA). The bill got such a late start that it failed to make it out of committee during the 2012 Congressional year. It also fared poorly at a Congressional hearing in late November 2012, but sources such as Billboard warn that the bill isn’t dead so much as “hibernating.”

As proposed, this legislation would have lowered the amount of music artist royalties that Internet radio and music streaming services such as Pandora and I Heart Radio currently pay to copyright owners of the songs and sound recordings that form the basis for their businesses. According to Pandora and other Internet radio providers, the current royalty rates make their business models unprofitable.

Expanding the market by reducing music artists’ royalties?
In a nutshell, Pandora and their coalition of Internet radio supporters argue that artists will ultimately benefit by allowing reduced Internet radio royalties, since this will allow Internet radio companies to become profitable and continue to build the audience for music that often cannot get airtime on terrestrial radio. While there is no denying the Internet has done a lot to level the playing field for indie artists, Pandora is a publicly traded company with more than 100 million registered users. In November 2012, Pandora cited data that it accounted for 7% of all US radio listening, with 62.4 million active listeners that month. It has also just launched the service in Australia and New Zealand. Should artists and labels take a hit on their royalty rates to help Pandora continue to grow in size and profitability?

According to CNET’s Greg Sandoval, that’s exactly the pitch Pandora co-founder Tim Westergren used to make the case for the IFRA. Sandoval stated, “[Westergren’s] argument to the music industry boiled down to this: we need to slash the money we pay you in order to help you.” Sandoval’s point emphasizes that while Pandora is an effective platform to encourage music discovery for consumers and lesser known bands, just being “discovered” doesn’t pay the bills for a struggling artist. Payments for streaming or downloading their music will help pay the bills.

At the November 28, 2012 hearings, Pandora CEO Joe Kennedy lobbied Congressional Representatives stating that Internet radio providers should be paying the same compulsory rates that cable and satellite radio networks receive (more on that below). On its FAQ page encouraging support for the IRFA, Pandora cites that “satellite pays about 7.5% of revenues and cable about 15%, while Pandora pays more than 50% in royalties.” Arguing its case based on revenues is clearly self-serving, however, as the business models are totally different.

XM/Sirius radio and cable require a monthly subscription payment before listeners can access any music, while Pandora operates on a “freemium” model, meaning that there is no monthly subscription fee for its basic service (ads are inserted into the music streams). Pandora’s no-cost model has been the key driver of its dramatic growth – which is why a percent-to-revenue comparison is inherently biased.

Appearing in opposition to the IRFA before the November 28, 2012 hearing, the National Music Publishers Association invited a few songwriter members, including Desmond Child and Linda Perry, to each perform one of their songs in the halls of Congress. Perry performed her song, “Beautiful,” a mega-hit for Christina Aguilera, which she explained was streamed 12.7 million times on Pandora in the first quarter of 2012. These listens amounted to only $349 in songwriter royalties. Child led an impromptu sing along of his hit “Livin’ on a Prayer,” which he co-wrote for Bon Jovi.

Producer Jimmy Jam testified, arguing that the majority of musicians are not millionaires, but middle class artists struggling to make ends meet. “Their talent is necessary to make the industry work,” explained Jam. “An artist gets 70¢ for a download, but only a tenth of a penny for a Pandora stream – that’s why the Internet royalty is so high.” Jam was joined by Sound Exchange president Michael Huppe, who explained that, “a Pandora listener who spends 250 hours with the service costs Pandora only $4 in royalties, and now Pandora wants to lower it further. What would a willing buyer pay a willing seller for this?” Huppe’s point reflects the attitude of many performers and labels that the Internet radio royalty rates are already quite low, unless you compare them to terrestrial radio’s totally free ride when it comes to performance royalties.

As the different sides argued their points in the hearing, it became clear that the artistic community, backed by their own informal coalition of songwriters, music publishers, record labels, and the Recording Academy, viewed the terms of the IRFA as clearly anti-artist. Some of the Congressmen also noted that the bill, as proposed, would likely reduce the earnings received by an artist from roughly $4 per listener to 70¢. In fact, Rep. John Conyers (D-Mich.) chided proponents of the bill stating, “A more appropriate title for the bill might be the paycheck reduction act, because what it would do is lower the royalties that Internet radio pays by more than 85%.”

The elephant in the room – terrestrial radio’s “free ride”
Sandoval reported that a few of the Representatives “began asking why Internet radio and satellite radio must pay but traditional radio does not. They questioned why Congress was looking at a little piece of the problem, Internet radio, when terrestrial radio broadcasters, a much larger group, had been allowed for decades to generate profits from music without paying any compensation.”

If there is any added benefit to performers and labels that may come as a result of the IRFA debate, it’s that the elephant in the room, the fact that terrestrial radio has had to pay nothing for 80 years to build its profitable business model, may once again be under the spotlight of Congress, as well as the music and tech industries.

Terrestrial radio broadcasters, the AM or FM stations that you listen to as you drive around town, were granted the right to use sound recordings back in the 1940s without paying labels or performers. To be clear, in the 1940s, copyright did not yet exist in sound recordings, only in songs. Terrestrial radio broadcasters do, however, pay songwriters through ASCAP, BMI or SESAC, but when a radio station plays a Foo Fighters song, while the writers receive a payment from that terrestrial broadcaster, neither the performer nor his or her label receive a cent for the broadcast of that recorded performance.

Cable radio and XM/Sirius satellite radio pay both songwriters and sound recording copyright owners through Sound Exchange, at rates agreed to some years back when Congress added royalty provisions for digital streams. Adding insult to injury for performers and record labels is the fact that the USA is the only industrialized country that does not require terrestrial radio stations to pay both songwriters and performers a separate royalty for use of their music. Often referred to as a radio performance royalty, this issue has been a subject of debate on and off over the last five years in Congress, but a powerful terrestrial radio lobby, led by the National Association of Broadcasters, has been able to blunt the efforts of performers and the recording industry to overturn this long-standing convention. (For a quick review on copyright and music licensing, check out Copyright Basics: Exclusive rights, licensing lingo, and more.)

Other industrialized nations all pay a radio performance royalty, but no US artists are paid one in those foreign territories, since foreign artists do not earn any performance royalty in the US. This international convention is referred to as reciprocity. So for instance, when a song by Adele is played on a US terrestrial radio station, neither Adele nor her label receives a US radio performance royalty. Likewise, when a Frank Ocean song is played in the UK, neither Ocean nor his label receive a UK performance royalty, even though UK radio stations pay these to all non-US artists. As you can see, the radio performance royalty on its own is a major headache for performers and labels trying to make a living in today’s music world.

If all these facts have your head is spinning a bit, don’t despair. Both the music and tech industry’s intense interest and lobbying for how royalties are calculated and paid point to the fact that music is continuing to play an important role in the new millennium, and will continue to be a driver of both technology and hopefully, copyright revision. It is also likely that the main points of the IFRA will reappear in the new 113th Congressional schedule for further debate.

Where do we go from here?
Rumors are currently circulating that the Internet Radio Fairness Coalition will regroup shortly and reintroduce the key tenets of the IRFA, most likely under a new name, since the old name is now viewed as having lost credibility with a number of elected representatives and suffering a bit of a PR black eye. Billboard’s Glenn Peoples, who follows digital media, wrote on January 3, 2013 “IRFA is dead for now, but it was really killed by the calendar. IRFA was unlikely to be passed before the 113th Congress was sworn in today. Instead, it sets up a political fight that is likely to last for years.”

Pandora is not flying solo in its efforts to change its royalty obligations. Juggernaut Clear Channel Radio, the Consumer Electronics Association, the Digital Music Association (DiMA) and a number of other smaller organizations are part of the Internet Radio Fairness Coalition, the group trying to lower the costs to use music for all Internet radio businesses. The LA Times reported that Pandora’s Kennedy was joined in support of the bill before Congress by Venrock Investments Partner David Pakman (founder of early Internet music company, eMusic). Pakman stated that his investment firm was staying away from Internet radio because “the current licensing regime – virtually prevents success.” Hubbard Radio CEO Bruce Reese agreed telling the Congressional committee, “The Internet provides an opportunity to expand, but streaming is impeded by high, unaffordable royalty rates. There simply is not enough revenue to cover costs.”

If you are a songwriter, recording artist, indie label owner or music lover who believes that artists should be paid for creating and sharing music, keeping an eye on the battle of both Internet radio royalties and the bigger issue of the performance royalty exemption for terrestrial radio should be added to your New Year’s watch list. Ultimately, being able to make a middle class living as a musician and artist will be affected by these decisions made by elected officials in our nation’s capitol.

Music isn’t declining in popularity anywhere in the world, but it is going to take informed and articulate musicians and music managers to advocate for fair compensation for artists, labels, songwriters and the rest of the creative team that makes the music we all value.

Scales image via ShutterStock.com.

Keith Hatschek is a contributing writer for Echoes and directs the Music Management Program at University of the Pacific. He’s also written two music industry books, How to Get a Job in the Music Industry and The Golden Moment: Recording Secrets from the Pros.

Read More:
Business Matters: Why Taylor Swift’s ‘Red’ is Absent From Subscription Services (Billboard.biz)
For artists who have a strong and loyal fan base, allowing their records on streaming services lowers their earnings, as pointed out by Swift’s savvy label president, Scott Borchetta.

Taylor Swift’s Label Shuns Streaming Services With ‘Red’ (RollingStone.com)
More on the issue of holding back new releases from Spotify and other streaming services in this Rolling Stone article.

Performance Royalty Debate Rages On (KCRW.com)
The Debate on Performance Royalty Exemption for Terrestrial Radio – this is a succinct summary from 2009 by KCRW reporter Celia Hirschman on the “elephant in the room” regarding radio performance royalties.

Will The Internet Radio Fairness Act Drive A Stake In The Creative Process? (HypeBot.com)
an interesting opinion piece by music publisher Frank Liwall from Hypebot.

Lawmakers Ponder Disparity in Internet Radio Fairness Act (AdWeek.com)
A short summary by Adweek’s Katy Bachman that lays out how the debate over the IFRA backfired on Pandora’s terrestrial radio partners that hoped the Act’s passage would lower their costs dramatically.

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Pay everyone but the musician | The Music Biz
November 30, 2013 at 5:27 pm

{ 48 comments… read them below or add one }

Chris Sampson January 29, 2013 at 2:17 pm

I think it is very clear that a for-profit revenue stream is going to be hard to do with the increased desire from listeners to hear and view content for FREE.

If these companies want to make a profit via other means it will be with banners or ads. They don’t sell the content itself obviously. Not much different from terrestrial radio.

If they are going to be making a profit, or creating a presence for themselves off the artistic wares of others, then they should fall under any rights the copyright holder demands.

But, what about how the law affects internet radio stations like the one we never launch because even though I have permission to stream content for no charge from people who have sent me music and said, “I’m not charging you, you promote the hell out of me so well already, help me!” I can’t easily do that due to the existing law. I don’t tinker against the law. I simply write my own music and put it in my own segments that limit how many voices outside I will stream.

If we change the law, we should create a not-for-profit model that allows musicians to say, “I’m not looking for revenue from someone who is trying to promote me.” That isn’t the same as, “I don’t know you, I didn’t give you permission to play my music simply because you’re a fan, but thanks for being a fan.

So I’d be interested in what you think we should do there. Many thanks for covering the legislative end though. That’s where it matters.

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Dan January 29, 2013 at 10:46 pm

Where is Lars?!?!? This is a new type of Napster that will last as long as the court hearing. This guy’s (internet radio) will lose because of the massive payments everyone else has had to pay in the past for eons now! Not to mention, these infant web radio stations do not realize… This is not local (State) law we’re talking here, federal (Washington D.C./Library of Congress) law protects music. And remember kids, a Federal civil (Tort) suit can always turn into a Federal criminal (prison time) suit if the Attorney General feels like it! Just something for the internet radio to ponder.

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Howard February 1, 2013 at 3:14 am

Chris,
Internet radio stations and streaming sites are allowed to play and promote artists without compensation to the artists. That was a provision included in the 2010 legislation.

ReverbNation and MySpace are two examples of social media/music streaming sites that require artists to agree to no royalty compensation before allowing artists to upload songs.

Likewise, there are many indie internet radio stations that receive permission from artists to play their music without royalty compensation. Breaking the rules and playing music without permission equals a substantial fine and cease and desist orders from the collection agencies. Trust me, it is not easy for these indie internet radio stations to generate any income. Most, like me, are paying for web site, server costs, and the ability to stream out of our own pockets without any, or little, ad revenue. We do it for the love of the music and the gratitude of promotion for/from the artists. But, we are not allowed to play whatever we want. Again, internet radio, bloggers, and streaming sites must receive permission from each artist to play without pay. You will usually be able to identify these streaming sites instantly. You won’t hear legacy artists or any major label artists. The models between terrestrial radio, major internet streaming sites (like Pandora), and indie internet radio/bloggers are different. Let the artists decide whether they are willing to give up royalties in lieu of promotional play.

Pandora, iHeart, and others cater to legacy and major label artists. After all, that’s what the mainstream listener wants to hear. For that privilege of a larger listening audience and potential ad revenue, I believe they should not have their royalty rates reduced. Likewise, I think terrestrial radio should pay performance royalties. It is my opinion that lower royalty compensation will hurt all artists. Major label artists will receive less, and there will be no incentive for the large internet streaming sites to play indie artists (just like the current model of terrestrial radio). Also keep in mind, many major internet streaming sites currently require artists to pay a submission fee or pay-per-play fee. Outrageous!

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Jamie January 29, 2013 at 2:18 pm

Yeah, artists don’t need to get paid enough. All they do is slave away in the studio for hours hearing their own voices on loops continuously and spending thousands on studio time. Try that, Pandora. For some of us, music is actually unique and we can’t just pull it out of our rears

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Anonymous January 30, 2013 at 9:55 am

yeah! many hours with hig-learning curve equipment and software!
Face it, if you are a S/S/M as well as Engineer, or all four — it’s a win/lose or should I say tradeoff.

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Colie Brice January 29, 2013 at 2:22 pm

Thank you for illuminating this abysmal situation. In what other industries to workers get such modest compensation for their work? Why is the recording artist always the last to get paid in these new music business schemas? We were better off in the era of the nickelodeon.. I guess we’ve always been court jesters..

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Ken Loebel January 29, 2013 at 2:33 pm

Perhaps the world should see a global strike by recording artists and performers. A well-written song, sung by inferior artists, will go nowhere. The performing artist is just as responsible for a song’s success.

Look at World Music League for the business model offering fairness and oulling away the minopoly

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Aaron January 29, 2013 at 2:51 pm

“A well-written song, sung by inferior artists, will go nowhere. The performing artist is just as responsible for a song’s success.”

Not fully true. Look at all the horrible musicians already getting paid in this industry!!!
If everyone goes on strike, the industry will bring in a bunch of sell outs and make them famous and there won’t be anything we can do about it.

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Chris Sampson January 29, 2013 at 4:06 pm

Aaron is correct about the scab market that emerges when musicians boycott. What needs to happen is more conscious dialogue about getting paid for artistic work and how to either regulate it or empower the artists to control their work.

I tune in the radio often to hear poor quality filler all the time. There are stunning artists in all sorts of genres that never get heard on mainstream radio and internet radio is the perfect place to create more niche service. I’ve been doing that for 14 years online. But what we lack often, a coherent message about revenue for any of us. Instead it gets locked in “cd sales” vs “digital downloads”. Piracy be damned, musicians have to adapt and adapt together.

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Fred January 29, 2013 at 2:33 pm

The real key here is that the government should not be involved in this at all. If this country still enshrined our Founders’ values of liberty and individual rights, revenues would be determined by the market, not some bureaucrats or politicians. As a musician, you should have a right to sell your works for whatever you deem fair, and Pandora should have a right to pay you what they deem profitable. When those numbers do not agree, there will be no supply of music for Pandora and they will have to negotiate. That is the only free and fair way for the system to work. Otherwise you have simply another example of wage and price control, which is loved by this socialist government, but which never provides goods and services as efficiently as the free market.

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Paul January 29, 2013 at 4:24 pm

Sadly, this how the system worked BEFORE there were government regulations and copyright laws. Artists worked for a meal and a place to stay – nothing more. Actors and musicians were the LOWEST paid workers of all. You are naive to think deregulation would help artists.

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Ken Loebel January 29, 2013 at 2:38 pm

Publishers and songwriters have a sweet gig that uses recording artists as slave labor. The monopoly radio operators also use recording artists as slaves but benefit from advertisements that are directly related to recording artist talents and ability to hold an audience.

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JOhn Richard Hendley III January 29, 2013 at 3:33 pm

I am a songwriter or I should say lyricist. I know I have spent many years and can I say thousands of dollars to have my demos done, and my music promoted so I have paid the artist for their time and the promoters for their time as well. I have also spent many hours writing the lyrics as well. Now although it is the greatest thrill in the world to hear a song on the radio or on TV. I would enjoy my share of the royalties I am entitled too. So in my instance there is no slaves as I have compensated everyone along the way who has worked with my music, and I believe it has fair to everyone, but in all this including the songs I have registered with BMI it seems as if everyone is making money except me, and now you want to pass a law which takes even more money away??

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Ken Loebel January 29, 2013 at 2:42 pm

Artists should get a percentage of ad revenue for delivering the audience that allows radio to profit. Same for subscription services.

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Steve Thompson January 29, 2013 at 4:06 pm

I’m with you on that one. Sort of along the lines of Youtube?

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judy January 29, 2013 at 2:43 pm

Must say professionals like mr borchetta must know what they’re talking about when it comes to money. I need to study more to make a comment on this issue

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Bryan Cannon January 29, 2013 at 2:46 pm

I have not reviewed the legislation, so I have no idea what it really says, but the original intent as it was described to me was that the interest radio stations were requesting that they pay the same rate that regular broadcast radio stations pay in order to make it even. Personally, I can’t find the kind of music programing on broadcast radio that I can find on internet radio. I am a musician (not professional) and a fan and supporter music artists (I buy music). I want to be able to find and access the music I love to listen to. I don’t want to be stuck with and limited to what the music industry promoters (read those who control the broadcast stations and their playlists). There is a reason why alternative music sources have sprung up on the internet. The consumer wants something different than what the industry is trying to steer them towards. I don’t want to see Artists get less, I want to see the fee rates paid by all stations (broadcast and internet) to be even and fair.

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Shemrah January 29, 2013 at 3:45 pm

Mr. Cannon, I totally agree with you. The business of making music and profiting from that music – a product of the heart and soul of being human…has become such a quagmire for the professional Indie musician. From what I can see, today, there is no clear cut business model that works; one truly has to be not only uniquely talented, but equally important, an entrepreneur with a sound business mind that can keep up with the changing music business landscape and the rapid growth of technology. Without ample funds to sustain 1) day-to-day living expenses, 2) investment in quality music making and its effective marketing, 3) where traditional exposure by way of mainstream terrestrial radio stations and other media, are owned by special interest groups that control the playlists we (the public) hear in order to promote their own agendas, 4) competition with the less costly DJ, etc., it is a sad day when ultra talented artists are dropping out like flies. It is an insult to them to walk out of a club after a great performance, with only a few bucks in their pocket after all is said and done. Where is the respect? Bottom line, it takes money to make money. The Internet and satellite radion stations, YouTube, and creative social networking, have provided India artists with strong avenues to get their music out to the people. But, their music can only be sustained with further investment of capital. It is a vicious circle. It is definitely time to further decentralize big brother to stop its capitalizing off of musicians, and rebuild the business of music making from the grassroots level and to restore the its control, to the musicians. We will all need to play this game if we want to further be enriched by music we want to hear and that we hold so dear.

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Steve Thompson January 29, 2013 at 2:58 pm

Just for fun, apply Pandora’s business model to any other industry and it becomes an obvious and twisted joke.

For instance, imagine a nice, new, fancy-shmancy restaurant opening up for business and serving customers a huge and endless variety of amazing and original food creations, FOR FREE. The customers would only have to agree to quiet down for a minute or two every once in a while to listen to a commercial for some unrelated business. The customers could feast on any and everything, all day if they wanted to, and pay the restaurant nothing. The place would be packed, just like Pandora! The kitchen staff would be hard at work in the back, slaving away passionately to conjure up all manner of delicacies, hoping to interest the customers, gain personal recognition, and expecting to make a decent paycheck. Oh, and the kitchen staff would be required to supply all their training, equipment, and ingredients OUT OF THEIR OWN POCKET! The staff would, of course, expect to be paid an honest day’s wages, but the restaurant owners would give them a measley “tip,” apologizing that, after the owners paid themselves “modestly” from the advertising revenue, there simply wasn’t enough profit left over to pay the staff fairly. Pandora’s business model is an EXPLOITATION of the creative, hard-working, self-sacrificing staff “in the back,” and nothing less.

Being a composer myself, I personally don’t listen to Pandora because I recognize it for what it is. I also haven’t uploaded any of my music to their service and likely never will. Don’t blame the tens of millions of consumers who listen to music for free all day long. They’re mostly just oblivious to the reality of Pandora’s scheme. After all, if we knew of a restaurant in town where we could enjoy awesome food for free in exchange for enduring a few annoying commercials along the way, we’d eat there too. We’d just ASSUME the staff would be compensated for their work. The real suckers are the kitchen staff, the musicians, who have allowed their work to be exploited and haven’t stood up for themselves in any unified way.

As musicians who hope to live from what we do, we would never allow one of our songs to be exploited or used by a major, blockbuster film in exchange for only a few bucks. So why do we allow Pandora?

Just adding my two cents, a.k.a. my latest paycheck from Spotify…

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Mike January 29, 2013 at 6:36 pm

Steve, I’m totally with you on this and bravo to you for equating this ridiculous reality of the situation in down to earth terms but what I must add to this is that what you are describing is the new American corporate culture of greed to a tee. All major corporations are in essence, doing this to their employees in order to compensate their executive staffs obscene amounts of salary, benefits and over-compensation. Case in point, read what the CEO of Goldman Sachs just gave himself, and this guy should be in jail for being mostly responsible for the worldwide recession / depression we are faced with today. Pandora is just one in a million now jumping on the bandwagon, why?, because people are letting them do so and they are not empowering themselves enough to say ‘No, you will not do this to me.” Lars Ulrich was so right, years ago, but did anyone listen to him? Most people justified their piracy and unfortunately still do.

If you are being played on Pandora or any streaming radio and you do not agree with their policies, PULL YOUR MUSIC FROM THEM. Simple. Easy. I have done it. I will not allow this situation for me.

Unfortunately, our culture has been turned upside down by these corporations and the common man is made out to be the victim while the offspring of the Rothschilds and their cronies are controlling our governments, our environment, our liberties, our freedoms and our copyrights.

Enough is enough. Take control of your music, your life. JUST SAY NO.

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Rick January 30, 2013 at 4:20 pm

Mike I believe you have exposed a critical issue.

I am 63 yo. I worked in LA as a musician from 63 to 74 and in my retirement have returned part-time to find the situation dire. Back in that ancient time, we had unions that fought for equity in the marketplace. Many corporations had pension plans that provided an extra share of reward for their work. Bonuses and stock options were common. Today much of this has disappeared.

While the masses toiled, the masters have spent the past half century co-opting our government through lobbying to stack the deck in their favor. Getting themselves off the hook for all of those things that built some measure of equity for the middle class. And it is clear that what they want is more for themselves and less for everyone else ad infinitum. They have no concept of social economic balance. They only see that as some sort of business weakness. They call it socialism and scare people away from it. Because in their view, to win means to take EVERYTHING you can get through whatever means necessary.

Without unions, and a government of, for and by the people to fight back, I predict that this will continue to get much worse for everyone except a small slice of wealthy, well connected tyrants.

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Mark January 29, 2013 at 3:14 pm

The only FAIR solution is to have over-the-air radio and internet radio stations pay at least similar rates. Right now, radio get a free ride while internet is paying heavily — that hardly seem fair. Artists need to get paid for their work, but killing the 21st century goose to try to make up for stupid deals of the past will not accomplish this in the end.

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Chetdude January 29, 2013 at 3:17 pm

Isn’t it interesting that in these dick-fights between corporate capitalists they’re able to enlist so many folks who are getting 5% to fight their battles for them…

As a “cover artist”, musician and Entertainer whose career has been severely crippled by a system that pays writers pennies and artists as a whole little or nothing, I’m completely underwhelmed by this discussion…

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JOhn Richard Hendley III January 29, 2013 at 3:40 pm

I still say out of this whole deal us artist are the losers, if your going to use my work pay me for it!! END OF STORY!!!

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buck baran January 29, 2013 at 3:55 pm

This is a shameless no-brainer. The streamers are a low-overhead high- profit margin industry: servers, computers, a couple of programmers and an electric bill. Terrestrial is high-overhead lower- profit margin: transmitters, a ton of electronics and plenty of staff. Both sell ads but terrestrial, with its high-overhead, manages to pay 9.1 cents versus 1 cent from the streamers (Spotify). IE: 1,000,000 plays = $91,000 vs $10,000. You can’t pay the bills and invest in your music on 10k. And good luck getting 1 mil plays.
Internet exposure is a crock. Songwriters/composers make their living from royalties and unit sales. If your music is in a cloud for anyone to access at anytime/anywhere, why should they buy your product?
As far as I’m concerned streamers should be restricted from new releases from up to 5 years old.
This is a con job and with the money they make they will influence the Congress.
Advice from this older musician: DO NOT SACRIFICE YOUR MUSIC TO THE CLOUD. Whatever fans you acquire along the way will not buy your music and you will not earn the living you justly deserve.

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Chris Sampson January 29, 2013 at 4:26 pm

“The streamers are a low-overhead high- profit margin industry: servers, computers, a couple of programmers and an electric bill.”

You’re half right there. Streamers can have low-overhead and not have a high-profit, or any profit.
Terrestrial clearly has overhead.

What can happen?
For profit stations should pay in. Those stations are seeking to make a profit, then pony up like the other for-profit. Then the not-for-profit groups, collectives of artists, etc, can do their shows free of the constraints of the for-profit models. This includes artists who willfully submit their music, or other artists with poems, words, etc. And standard rules of “standing” apply where only the artists and the broadcaster have a relationship.

Both my clients and hundreds of artists I’ve worked with over the years have agreed to let me play their music without concern for keeping track of financial thoughts. We are not seeking to make money on their music as we already have our other musician services we’re more focused on. We do make money with many of the artists on titles we co-create or broker. But we can’t create a streaming set up without the hassles of some of their affiliations. Even when the titles are owned by the artist, they do have membership in BMI, ASCAP etc, and that changes everything.

So we have to hash out models that allow the same field in internet radio as we find in terrestrial radio when it comes to community radio and prohibition due to for-profit thinking. I am not saying “give away the music” either, I’m saying we have less money in our pockets as music makers in this particular tree because we don’t stream without hesitation. It is akin to no advertising the music. You don’t have to play the entire album’s worth, and you can even pitch, “look these artist worked hard in the studio, hit their page today and download the digital package for just 7.99.” and good for all.

This is just the crowd to ask, these questions, so please let me know what you think.

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Adrian Brigham January 29, 2013 at 4:06 pm

Did you ever hear the phrase “cut off you nose to spite your face?” That is what will happen if the Fairness act is passed. Artist are looking at this from entirely the wrong point of view. First, can anybody point out an indie that is living the life of luxury strictly from net radio royalties? The are so small to begin with you would need a huge number just to buy a cup of coffee. If the rates fall I don’t think it will cause any major lifestyle changes, but if they stay the same that is exactly what could happen.

Folks, radio airplay is free advertising, and the more advertising we get, the more we sell. Selling a single download will earn you far more than the miniscule fraction of a penny you’ll get from streaming royalties. We should be encouraging more airplay, not discouraging it. The problem isn’t with the royalties, it is the very nature of net radio at this time and a very poor royalty structure. You have to remember these rules and scales were set up at a time when streaming technology was in its infancy.

First, let me explain what my company does so you understand this perspective. We both represent and manage artists, we work with labels on marketing and promotion, and produce concerts. As part of our marketing services we run a radio promotion service. In other words we get paid to get artists music played on the radio. Broadcast airplay is HUGE in promoting and selling music. I don’t want to get into a discussion of the broadcasting industry and practices here, that’s not the point. What is the point is that is what exposes new music and artists. I don’t want a penny from the stations, I just want them to play the hell out of our artists!

This being said however we rarely bother with internet stations. For the most part their audiences are so small that they just aren’t worth the effort. For the indie it might be a benefit as you don’t have the majors pushing their weight and music around, so getting played is pretty easy compared to getting on broadcast, but you won’t be played to the masses. As far as the internet stations go this is a very big problem. There are tens of thousands of them out there all competing for listeners, so the audience is divided up into very tiny numbers. That means it is very difficult for net stations to sell advertising. What is worse their audiences are centralized in one geographic area, so small local potential advertisers have no reason to buy time. Selling ads on net radio is extremely tough, therefore the net stations really make little if any money. Most actually lose. Lowering the royalty rates will actually help the TRUE net stations to survive, and maybe even more will start up. That means more exposure for the indie artists and that can lead to actual sales where you can make more than pocket change!

The problem isn’t the royalty rates, it is how they are applied. You have to understand the definition of “radio”. When you turn on a broadcast radio you have no control over what is being played. The DJ decides that, so you either like the song or you change the channel. You could try calling the station and begging them to play your favorite Polka, but unless it’s a Polka station that’s not likely to happen. The same holds true for satellite stations and net stations. They control the music, you don’t! That’s “radio”. That’s also how you discover new music. As a musician it is the best kind of earned media you can get! But not all streaming is the same. Pandora is a radio station, even though it can be customized to your tastes, you still can’t control which songs are played when. That all changes when you put on-demand streaming services like Spotify in the picture. They are NOT radio stations. They are essentially a giant iPod in the sky. You can listen to what you want, when you want, wherever you want, as often as you want, and you don’t have to spend a lot of money buying downloads that will just clog up your own iPods memory. Spotify, contrary to the propaganda Mr. Ek keeps spewing out, takes away the need and interest to actually purchase an artist’s music. But he gets to keep his money because he’s paying artists the same paltry royalty rates that legitimate net radio stations are struggling with. Isn’t there something wrong with that picture?

There are a bunch of that have been trying to get message across. Change the definitions of streaming services and set the rates accordingly. I’d be very happy if they’d kill the royalties all together on real honest net radio stations. Give them the break they need to survive and actually prosper. I’d be even happier if they’d raise the royalties on the “on demand” streamers to the point where Ek chokes on it. What we need is to redefine the rules and classifications. Not all streaming is the same!

Understand these problems, definitions, and potential solutions, and I think you’ll see it isn’t the “radio” stations stealing from the artists. They are truly a musician’s best friend.

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Chris Sampson January 29, 2013 at 4:28 pm

Exactly. Adrian.
You and I do the same thing in a way and we are trying to do this in the middle of larger and smaller boats, correct?

Lets dialogue about how this policy should be written from our experience working with these artists and see if we can help move the conversation to a workable place.

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Shemrah January 29, 2013 at 5:14 pm

Yes, please do.

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iona tomas January 29, 2013 at 5:27 pm

I have been a musician for many year s and have taught in youth clubs aspiring young musicians who wish to have a future in the business,i used to be proud to teach about the music business but for now i have stopped, i have seen a lot of changes to this music system, in the begining it looked like the companies were looking after the musicians and thier interest but now i think its just thier own , they are doing deals behind the muscians back to take money from them, record companies cuts are getting bigger ,THEY ARE NOT THE MUSICIANS BUSTING THIER BUTS OUT THERE AND WITHOUT US THEY WOULD NEVER HAVE EXISTED, THEY HAVE SIDE LINED THE UNIONS SO WE WOULD NOT GET OUR RIGHTFUL MONIES, WHILE THE RECORD COMPANY,S ARE TAKING IT TO THE BANK MAKING A JOKE OUT OUR MEANINGFUL PROFFESION, MUSICIANS SOULD UNITE TO STOP THEM MANIPULATING THINGS FOR THIER PROFIT AND ON MANY OTHER LEVELS, DOING SECRET NON EXCLOSURE DEALS LIKE THEY HAVE DONE WITH YOU TUBE THEY DONT PAY THE MUSICIANS THAT PLAY ON THE TRACKS BEHIND THE ARTIST AND HAVE TAKEN THE MAJORITY PROFITS FOR THEMSELVES , FOR THE SAKE OF FUTURE TALENT NOT TO LOSE HOPE OF ACTULALLY MAKING A LIVING OFF THEIR PASSION OF CREATING AND MAKING MUSIC, IT HAS NEVER STOPPED THE RECORD COMPANIES FROM MAKING THEIRS , THIER NOT JUST HUTRTING THE ARTSTS THIER CREATIVITY THEY ARE KILLING MUSIC ITSELF, THIS IS EXPLOITATION AND GREED LAWS HAVE TO CHANGE AND LETS STOP THESE COMPANIES STEELING ANY MORE FROM US

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Renaise February 3, 2013 at 12:36 pm

you are perfectly right.. I got my indie working on caring about artists.

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Rich Martinez January 29, 2013 at 5:27 pm

This is disgustingly unbelievable. The matter is very simple. What kind of business plan requires the cost of goods sold to be zero?!?!?! What kind of capitalism is this? This is un-American! Steal the product from those who produce it so I can be profitable? Must be nice. People who want to do this are failed business persons from the get-go. They need to go back to flippin’ burgers at McDonalds where they belong, and probably came from. Why do we feel businesses like this need to exist. Whomever thinks it should be the case, then THEY should pay for it.

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Rich Martinez January 29, 2013 at 5:53 pm

If they can’t pay royalties, like radio for example, then it is simply not a viable business. Plain and simple. They just need to belly-up and go out of business. It’s like telling Picasso you’re taking his paintings to sell, but not pay him, or perhaps pay him pennies. But, think of al the exposure and publicity you’ll get. Think of all the folks that will discover you. Take cars from GM without paying for them, or pay pennies, and sell them. Then tell them to consider all the exposure they will get.

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Dexter Carter January 29, 2013 at 6:03 pm

Frankly, I would just use the web for promotional purposes. But, when it comes to selling my CDs, I prefer to do it the old fashioned way. I prefer to earn it!!! It doesn’t make sense to market your music all across the web when you don’t have the resources to collect all of your money. And the little money that these internet services are paying, are very little. The concept to remember here is: “Think Small and Grow Big!” That’s the only way to succeed in today’s market.

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Cass Tor January 29, 2013 at 8:21 pm

…..Same old story…..They use the money they make off of the artist, to get congress to sell us out…..Just like the “work for hire” nonsense!

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Jolly Rancher January 29, 2013 at 9:47 pm

Why does Pandora need to pay less to the artists, performers, songwriters in royalty payments? They can’t profit because the expense of music is too high? Then maybe they shouldn’t be in business. What about all those other expenses – electric bills, rent/lease/mortgage payments for their office space, local and state taxes, payroll taxes, equipment purchases (computers, servers, office furniture, etc)? Why don’t they petition Congress to make a law that will force the utility companies to lower the rate they charge for their services? Force the landlords to lower the cost of rent/lease/mortgage? Local and state government’s to lower or eliminate business and property taxes? Payroll taxes? And the vendors can certainly be regulated to lower the cost of all that equipment they sell to Pandora to make their business run. Let’s not forget about all the employees who work at Pandora – they surely can be paid less to do the work that they do, right? I’m sure they would agree just as all the musicians and artists who face a cut in royalties do, right? If it’s going to be the Internet Radio Fairness Act, then it really needs to be fair.

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Dr. Rock January 29, 2013 at 11:32 pm

Yes, streaming services are trying to make money. Good for them. Artists are trying to make money, too. Wonderful! Let’s not forget that an artist’s greatest form of promotion for their music is radio, both terrestrial and streaming. My entire life I have purchased music primarily after having heard it on the radio. How about artists paying radio to get their music heard? How does that sound?

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Anonymous January 30, 2013 at 1:48 am

Most “artists” in this day & age cant even play a musical instrument. Everything is”virtual”. They record a whole CD without any real musicians & the lyrics are simplistic,absurd,& negative. Music should be beautiful,therapudic,& inspiring & played by someone playing a real instrument.(scratching a record,or tapping a tamborine dont count) Or take any training or study.

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Jim January 30, 2013 at 10:05 am

I think you are right in many ways. It’s my belief that it takes a lifetime of practicing, performing, honing your skills on the artistic end — as well as keeping up with the craft of recording (demos); not to mention videos now a days.
As hard as it is, I need to keep my music skills sharp for performance, knowing and accepting the fact that there are so many halfass ‘musicians’ out there who put more time into learning the marketing skills than I ever have done.
So, I suppose I’m a halfass ‘businessman’!

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Kakunka January 30, 2013 at 11:57 am

Interesting that Pandora and others tout that their business model is unprofitable. . . Saying that they have to pay 50% of their revenue to Royalties. . . The pure fact is, that their costs are minimal, and that they are making plenty . . . They just think that they should make more. Perhaps the term for this is “greed”???????

As for all the blather about “great” songs and performers not getting airplay. . . This is merely a matter of promotion. The corporate music world has their own vested interest in building their stable of “no talents” and promoting them. . . It is perhaps more profitable than searching through the “musical haystack” for the golden needle hiding there. . .
K.

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Jimmy Valentine January 30, 2013 at 12:26 pm

Wanna know how I feel? Go listen to some of my music for free! Then buy some downloads, better yet buy my book!

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Deborah Frost January 30, 2013 at 9:27 pm

Where is Lars, you ask? Making an exclusive deal with Spotify that his manager, Peter Mensch, is quoted by in New York Times piece this week, written by Ivan Passman, that plans to net Metallica 20 million users.

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Ron January 31, 2013 at 12:09 am

In radio we had to pay APRA it was calculated depending on the type of station, a commercial station had to pay (I believe it was around) 10% of annual revenue, a community station (being not for profit) had a yearly fee and when I licensed my internet radio station I had to pay $500 a year to APRA ,

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Prof. Hefner February 3, 2013 at 8:37 am

Terrestrial radio – Supported by, generally, advertisements funded by TERRESTRIAL/LOCAL businesses.
Listeners NEVER author their playlists, exclusively.

Internet “radio” – Supported by, generally, advertisements funded by INTERNET businesses.
Listeners ALWAYS author their playlists, to some degree.

The insanity of every single entrant in this fiasco speaks volumes (pun intended).
– Why is “our” government involved, except to implement terrestrial radio performance royalties?

As the listener (and taxpaying, law-abiding citizen), I expect gratious and sincere apologies from every able voice contributing to this cacauphony, regardless of volume, tone or stance.

As the artist (struggling, starving, yadda, yadda, etcetera, etc…), I expect EXACTLY the SAME.

Sadly, it seems common-place (and even modern practice) for businesses to whine-and-cry their way to profits and success.

Wake yourselves. Awaken as if from a great, deep sleep; groggy, hungry, slowly and simply. Govern your government. Demand your fees. Compromise your Cloud control.

…Or go lay down — I’ll do it.

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Prof. Hefner February 3, 2013 at 8:40 am

These are NOT the sciences of the rocket.

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Steve February 14, 2013 at 12:39 pm

Wait a freaking second. When a company in any other industry is running a business model that’s not sustainable, they will:

- Charge their customers more for the product
- Reduce manufacturing costs
- Streamline and optimize processes
- Pay employees less, reduce their workforce or hire less

It’s not hard to see why a company with aspirations of growing should do everything to prevent the last one. The artists that provide content to their services by the way, fit into this category.

But as relatively young companies, Pandora and similar services are saying they’ve tried every other cost saving measure available to make their business model profitable and sustainable. They’ve squeezed out every little optimization and have tried everything. That’s crap.

Also, unless you’re Metallica, Madonna or similar act, you’re a starving artist. A starving artist that’s being told at every turn by promoters, illegal downloaders, record companies, ticket firms, etc that the art you are providing is worth less than it used to be. Or sometimes they’ll tell you it’s worthless period (because they want it for free). I think (the prophetically named) Pandora have become part of a thing that they didn’t think all the way through. Nothing is for free and musicians should not be told they deserve less in this equation. ESPECIALLY with the aid of politicians who have absolutely NO understanding or stake in the future of music.

You guys keep effing with musicians livelihoods and you’ll see what that does to the state of the industry.

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Caryl August 30, 2013 at 8:27 pm

I do not think musicians should get less and less money while the users of their music make MORE money!

Would it help to provide less music for the stations to use and have way more live music that would pay the musicians? (Music that the stations cannot get their hands on.)

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