Pandora pony up for pre-72 recordings

Before 1972, recorded music in America wasn't "protected" by copyright. Some streaming services have been taking advantage of this to stream vintage tracks without feeling the need to pay for the rights.

The RIAA wasn't happy about this, and so threatened Pandora with court to demand payment.

Before it came to this, Pandora was bullish:

In response, Pandora issued a statement to The Hollywood Reporter: "Pandora is confident in its legal position and looks forward to a quick resolution of this matter."

The resolution was pretty quick, but, erm not in Pandora's favour:

Pandora Media Inc. will pay $90 million to record labels to settle a dispute over oldies, the Internet radio giant said Thursday.

The agreement with the group of labels -- composed of Sony Music Entertainment, Universal Music Group, Warner Music Group, Capitol Records and ABKCO Music & Records -- resolves yet another major battle over royalties for recordings made before 1972.

So, are Pandora upset? Apparently not. Oh, no. This is, honestly, the outcome they were hoping for:

Pandora Chief Executive Brian McAndrews, in statement, said the company was "excited" to have the dispute resolved. "We pursued this settlement in order to move the conversation forward and continue to foster a better, collaborative relationship with the labels," he said.

Yeah. Thank god, eh? All they wanted to was make a massive payment and knock a fifth off their share price. That was all Pandora ever wanted. All they asked for. They're excited. Real excited.

Judge suddenly changes US copyright status on pre-1972 recordings

There's no copyright on recordings made before 1972 in America. Except now there is, as a judge in California has told Sirius that it needs to pay when it plays such recordings.

Sirius aren't happy:

SiriusXM disagreed. "I think everybody should get paid, and I think everybody should pay," David Frear, the company's chief financial officer, said during a banking conference, as quoted in the New York Times. "But to get there, there needs to be a change in the laws. And it shouldn’t be coming from the bench. It should be coming from the legislature."

You might wonder if David Frear really wants to pay everyone why he chose not to pay everyone, but instead fought a legal case to stop paying anyone. 'I really want to pay but think there ought to be a law compelling me to pay' isn't a coherent position.

The record companies - who, rather than musicians, will pocket most of the cash - are happy:

"It's increasingly clear that SiriusXM, Pandora and other digital music firms who refuse to pay legacy artists and rights holders are on the wrong side of history and the law," Cary Sherman, chief executive of the Recording Industry Association of America, which represents the labels, said in a statement. "It's time for that to change."

The RIAA are charmers, aren't they? Every time a business finds a way to help them hold onto revenue streams in the 21st Century, rather than work with them, they're there, demanding more and effectively calling those businesses crooks.

If Sherman was ever in an accident and needed a transfusion, you suspect he'd be demanding to know where the blood taken from him was and why he wasn't getting the usual donation fee for it.

Pandora nudges past the billion dollar mark

Pandora has passed a significant moment in its business: it's paid the billionth dollar out in royalties. Music Ally reports:

A big number from McAndrews in the earnings call, claiming that Pandora has paid “over $1bn, yes, $1bn in all-time royalties to artists, publishers and labels”

To artists, publishers and labels, although that's almost certainly not in descending order of size of share.

Still, it's a lot of money. It may actually be a crippling amount of money, as Pandora's losses are heading in the wrong direction:

Witness its latest quarterly financial results, where the company beat analyst predictions, yet still saw its share price fall by 10%. That’s partly due to the company continuing to report net losses: $11.7m in the last quarter compared to $6.9m in Q2 2013. This, despite decent revenue growth: a rise of 43% year-on-year to $218.9m.

If your revenue grows by half, and your losses are damn-near doubling, you might have a pretty fundamental problem. Unless you've got a plan.

There was no news on Pandora’s global expansion plans – “We don’t have anything to announce at this point, but we do see longer-term. Our vision as I mentioned is to reach billions of people around the world,” said McAndrews.

Pandora don't appear to have a plan.

iRadio: Can you feel the excitement?

Can you hear the world, holding its breath, for the launch of Apple iRadio?

Nope, me neither.

The sheer lack of people who say "you know what I wish? I wish I could stream music through the iTunes interface" has always been noticeable.

It's likely that Apple will make the service a success, simply through plonking the iRadio button on homescreens of devices, and maybe there'll be something to the service unveiled today that makes it essential, or desirable, but it's hard to see the problem with music streaming that needs Apple to solve it.

AllThingsD tries to describe what we can expect:

[It] should function like an enhanced version of Pandora — that is, it will be a free streaming music service that gives users more control of their songs than standard Web radio, but less than full on-demand services like Spotify.

That's... uh, clear. The idea is that the tracks you hear will be half-determined by you telling it what you want to hear, and half it scanning your iTunes history. You know that time you bought the Crazy Frog to burn onto a CD for a joke for your brother? THAT will be the guiding light that iRadio seizes on to build your playlists. That, and the thirty unplayed episodes of OpenSouceSex.

Even so, I'll bet Spotify and Pandora are feeling uncomfortable this morning.

Interestingly, Apple have only just managed to pull Sony on board. Are the majors happy?

The majors publishers had looked like they were going to be the holdout because Apple initially offered to pay them a rate of 4.1% of its advertising revenue, while the publishers had been withdrawing digital rights from the U.S. performance rights organizations BMI and ASCAP because they wanted higher rates. BMG, Sony/ATV, UMPG and Warner/Chappell executives had privately said they were seeking rates of 10%-15% of iRadio’s advertising revenue. But when Apple agreed to a 10% rate, Warner/Chappell last week signed the deal and now so has Sony/ATV.

Getting more than double Apple wanted to pay. That's quite a strong move by the majors. Let's hope they don't do that thing where they suddenly get insanely greedy.

While publishers will get 10% of revenue, they privately are calling this an introductory rate, meaning that after the iRadio service establishes itself, they expect that rate to increase. Likewise, they also say they expect Pandora to match the deals they are doing now with Apple.

"We won't hold our ground when we have the advantage and Apple really needs us for launch. Oh, no. What we'll do, right, is wait until the service is established, and carrying itself along under its own sheer weight of numbers. At that point, when we've got massive sums of cash flowing in from Apple, we'll be in a really strong position to threaten to refuse to take that money any more unless they give us more. At the same time, with Apple crushing Pandora into near-obscurity, that'd be exactly the moment to ask Pandora to give us more of the less money it's making. Genius plan, eh, guys?"

Pandora: all that's left is hope, but a lot of it

Pandora have just released their financial perfomance figures for 2013. Here's what they choose as the headlines:

- Fiscal 2013 revenue of $427.1 million grew 56% year-over-year; 4Q13 total revenue of $125.1 million grew 54% year-over-year
- 4Q13 total mobile revenue of $80.3 million grew 111% year-over-year, outpacing mobile listener hour growth, which grew 70% year-over year
- Fiscal 2013 total mobile revenue of $255.9 million more than doubled and grew 105%, outpacing mobile listener hour growth, which grew 89% year-over year

All that shouting about revenue can only mean one thing: they're not making profits.

Indeed, the losses are so grim, Pandora can only bring themselves to express them as losses-per-share:

For the fiscal year 2013, GAAP basic and diluted net loss per share were ($0.23). Non-GAAP basic and diluted net loss per share were ($0.08), excluding approximately $25.5 million in stock-based compensation. Basic and diluted earnings per share were based on 168.3 million weighted average shares outstanding.

You have to spend a couple of minutes carrying figures before you realise they're talking a great big hole. Even if you do exclude "stock based compensation".

For the next year, though, they're predicting a profit per share of something between 5cents and minus five cents, which is either going to be good news or terribly miserable.

The company is upbeat about things, though, pointing to buoyant listener hours and rising advertising take:

"For the past two quarters, growth in mobile advertising revenue exceeded growth in mobile listening hours,” as CFO Michael Herring put it.

That's one of those impressive sounding claims that suddenly falls apart when you think about it - there's no promise that the advertising revenue is growing at a rate large enough to cover the costs of delivering the growth in mobile listening hours; just that one percentage number is bigger than the other.

At the same time, Pandora's CEO Joeseph Kennedy is getting the hell out of Dodge.

The end result of all this was the share price of Pandora rose. How much that is down the general giddiness of the markets off the back of a Dow Jones record this week isn't clear.

Galaxie 500: There's no money in being a Tugboat captain

Damon Krukowski out of Galaxie 500 and Damon & Naomi has written a piece for Pitchfork about how low royalties from Pandora and Spotify are.

They are, as we know, low:

Galaxie 500's "Tugboat", for example, was played 7,800 times on Pandora that quarter, for which its three songwriters were paid a collective total of 21 cents, or seven cents each. Spotify pays better: For the 5,960 times "Tugboat" was played there, Galaxie 500's songwriters went collectively into triple digits: $1.05 (35 cents each).
To put this into perspective: Since we own our own recordings, by my calculation it would take songwriting royalties for roughly 312,000 plays on Pandora to earn us the profit of one-- one-- LP sale. (On Spotify, one LP is equivalent to 47,680 plays.)

Obviously, this isn't comparing like with like; if you expect streaming to earn selling-like money on a rental-like proposition, you're going to be disappointed. It's more like radio plays.

And if you're expecting to earn radio-like money from streaming, you're going to be disappointed, too. With radio, you get paid for playing to big chunk of people; online you have to collect each of those listeners individually and so - unless you're a One Direction or a Lady GaGa - you're going to struggle to gather together an audience large enough to make anything beyond chump change.

But even if you set your expectations low, there seems to be something strange going on. Having set low royalty rates, Spotify then claws back most of the cash for... um, 'reasons':

[F]or 5,960 plays of "Tugboat", Spotify theoretically owes our record label $29.80.

I say theoretically, because in practice Spotify's $0.004611 rate turns out to have a lot of small, invisible print attached to it. It seems this rate is adjusted for each stream, according to an algorithm (not shared by Spotify, at least not with us) that factors in variables such as frequency of play, the outlet that channeled the play to Spotify, the type of subscription held by the user, and so on. What's more, try as I might through the documents available to us, I cannot get the number of plays Spotify reports to our record label to equal the number of plays reported by the BMI. Bottom line: The payments actually received by our label from Spotify for streams of "Tugboat" in that same quarter, as best I can figure: $9.18.

Taking two-thirds of the money away because the computer said so seems to be quite a disgrace. To not even be able to explain to the musician why Spotify are pocketing twenty bucks from a thirty dollar payout is, at best, unfair.

And it gets more unfair. Pandora pays a few cents to the musician as well as the songwriter. At the moment:

Pandora in fact considers this additional musicians' royalty an extraordinary financial burden, and they are aggressively lobbying for a new law-- it's now a bill before the U.S. Congress-- designed to relieve them of it.

As Damon points out, even with all this Scrooge McDuckery, neither Pandora nor Spotify are getting rich, either:

Pandora and Spotify are not earning any income from their services, either. In the first quarter of 2012, Pandora-- the same company that paid Galaxie 500 a total of $1.21 for their use of "Tugboat"-- reported a net loss of more than $20 million dollars. As for Spotify, their latest annual report revealed a loss in 2011 of $56 million.

Damon's conclusion? He subscribes to Spotify himself, and so isn't calling for a boycott, or a march on the server farms with burning torches. It's just this:

I have simply stopped looking to these business models to do anything for me financially as a musician. As for sharing our music without a business model of any kind, that's exactly how I got into this-- we called it punk rock. Which is why we are streaming all of our recordings, completely free, on the Bandcamp sites we set up for Galaxie 500 and Damon & Naomi. Enjoy.

And he's right. Having your music on Spotify is better, financially, than having it on a torrent or giving it away for nothing; but not much better.

That doesn't mean Pandora and Spotify should be allowed to try and shrink the already small sums they're paying, though. There's a logic to there not being much in pot; there's no reason for the house not to share it fairly.

[Thanks to @zaichishka for the tip]

Pandora sued for frictionless sharing

You know how, if you use Facebook and Spotify and aren't too careful, how all of a sudden everything you listen to gets pumped out to the wider world? Pandora introduced a similar feature a few months back.

There's now a class action lawsuit being gathered in Michigan, which claims the sudden wittering out of 'now playing' information to the usually-more-public-than-you're-expecting Facebook is a breach of a promise the service made to keep everyone's tastes private. If successful, it could cost Pandora $5,000 a user.

Not quite frictionless, then.

Opening Pandora's box

Yesterday's New York Times Magazine went behind the scenes at Pandora, watching at the company sucked all the joy out a new delivery of music:

Over the previous six weeks or so, the Pandora analysts listened to 650 Indian pieces, and the session I observed was a refresher course. Steve Hogan, who oversees Pandora’s analyst squad, had given a half-dozen of its members the same two songs to analyze. The first was “Raga Ahir Bhairav,” recorded by Bismillah Khan in 1955. But the analysts had not been given this cultural information; all they had for the assignment was the music and their ears. Hogan played a snippet and pointed to Kurt Kotheimer, a bass player who often gigs around the Bay Area.

Kotheimer consulted his listening notes: “Flat second, major third, perfect fourth, perfect fifth, major sixth, flat seventh.” Everybody nodded: that’s the tone set, which helps identify the particular raga, one of 25 new “genes” added to Pandora’s algorithm to accommodate this variety of non-Western music. Based on the beat, everyone agreed that this raga was set in Teentaal, with a 16-beat rhythmic cycle often heard in North Indian classical music; it’s now in the genome too. But that was the easy part, apparently.

They moved on to vocals, and Alan Lin, a violinist, ticked off the scores he came up with for things like rhythmic intensity and the relative exoticism of the melody scale. “I actually put exotic at 3.5,” he said. This prompted Sameer Gupta — a percussionist and an expert on Indian music who was weighing in by speakerphone from New York — to lead a brief discussion of how to think about melody and exoticism in this context. Seven or eight scores related to melody, and then about the same number for harmony. (“A 5 for drone,” one analyst announced.) More scores related to form. Tempo. The timbre of the reeds. When Gupta gave his score for riskiness on the percussion — a 3.5 — Lin did a sort of fist pump: “Yes!” Evidently he’d scored it the same way, meaning progress toward properly fitting Indian music into the Music Genome Project. Things went on like this for a while. “Even if you have a solo violin with a tabla, you’re still going to have monophony,” Gupta remarked at one juncture. “I just wanted to point that out.” It was hard to believe there was a business riding on this kind of conversation.

Pandora aim to cut out the influence of hipsters and taste makers in order to concentrate on finding music which is structurally similar to songs you like - it's very clever, and academically time-consuming, but seems to miss out on a whole lot of the things that make songs resonate.

This kind of box-ticking and point-scoring might work if you have incredibly limited tastes; if you don't, the weakness of Pandora (and, to a lesser extent, Last FM) is that there's a tendency to make your listening more conservative.

The problem is this: you tell the system you like Madness, so it plays you The Specials because they're a bit alike. You tell them how much you like that, and it chooses the next song. But the problem is that you're always on this branch. Sure, you can start over again and plug in Nanci Griffith, but once again you're going down the arm - and how can the system ever hope to tell how your affection for Madness and Nanci Griffith balances out?

The nice thing about relying on hipster bloggers is that sometimes you'll stumble across things you never knew you were going to like - and most people would say they discovered more music through a John Peel show than they ever would from The Evening Session.

Because even if subconsciously you favour songs with a 3.5 rating for exoticness and 2.7-worth of timpani drums, boiling it down to a matrix of numbers seems depressingly mechanistic. Do we really need a time-saving device to spare us the effort of serendipity?

Mixed results for online music in the US

NPD group, who analyse markets in return for money, have got some mixed results in their latest survey of music-buying by internet users:

[T]he number of internet users who paid for music increased by 8 million to around 36 million last year — purchased music downloads grew by 29 percent since last year, accounting for 33 percent of all music tracks bought in the U.S.

Well, that all sound positive, doesn't it? In the face of claims that people expect music to be free online, it turns out that more and more people are actually handing over their credit card details.

There is, though, a chill note:

Without CDs, it seems that many people are giving up on buying music entirely. In ‘08, the number of total music buyers fell by 13 million in the U.S. The decline in music buyers was led by a 19 percent drop in CD sales. Only 58 percent of web users said they bought CDs or digital music downloads last year, versus 65 percent in 2007.

So, in other words: people are shifting to downloads, and away from CDs. Hardly, you'd have thought, news that will come as any great surprise.

But why are people spending less on music? Turns out - and here's a funny thing - it's nothing to do with illegal filesharing. Nope, it's the recession. It turns out that while music industry executives may picture themselves as delivering an essential, new records or files are seen by the market as a luxury. Apparently, when times are tight, you might just listen to old CDs again instead of buying new ones.

Making the situation worse - from a sales point of view - is the increasing use of free, legal streaming services:

In the case of online radio company Pandora saw its recognition double, NPD says, as 18 percent of web users were able to identify it. The introduction of MySpace Music is also appears to be having an affect on listening habits, the study said. Social net climbed from 15 percent in Q407 to 19 percent in Q408. Nearly half of U.S. teens say they listen to music on social nets, which is an increase from 37 percent a year ago; among college-age web users, the percentage rose from 30 percent in ‘07 to 41 percent last year.

Well done, the US music industry - your attempts to shift people from illegal to legal sources of music seems to have had the side effect of turning audiences from people interested in acquiring music, to people who'll listen to it floating by instead. That... was what you wanted, wasn't it?

Pandora - not even much hope left, either

The music industry will be delighted with itself today; it's greedy attempt to push up rates for web broadcasting has almost completed the total destruction of the legal channel in the US. Pandora is about the throw in the towel:

"We're approaching a pull-the-plug kind of decision," said Tim Westergren, who founded Pandora. "This is like a last stand for webcasting."
[...]
Westergren, seemingly wearied by the constant haggling over the issue, signaled that Pandora's investors may also be impatient for an end.

"We're funded by venture capital," he said. "They're not going to chase a company whose business model has been broken. So if it doesn't feel like its headed towards a solution, we're done."

It's not entirely clear how the music industry believes throttling a new way of reaching customers is in its best interests.

Why internet radio will be throttled by rights holders

In light of the decision by Pandora to pull out of Britain, James Cridland has done the math on the "reasonable" demands of PPL/MCPS/PRS:

Paidcontent.co.uk reports that MCPS/PRS was asking for 0.085p per song per listener - which also appears on this PDF file on the MCPS/PRS website. PPL, in a press release about the Pandora closure, says they would charge 0.0561p 0.0773p per song per listener (the interactive radio rate). Pandora plays around 15 songs per hour.

Vordermanned out, this comes to:

Total music rights payments: 2.434p per listener, per hour.

Cridland then considers the established radio industry:

The latest figures from the UK’s Radio Advertising Bureau says that the commercial radio sector as a whole brought in £593m in 2007. The latest RAJAR figures show that commercial radio is listened-to for 441m total hours every week, or alternatively 23,018m total hours a year.

So… 23,018m total hours brings in £593m. Divide one by the other, and we find that, as a total industry average, commercial radio makes 2.57p per listener, per hour. And the revenue figures also include non-radio activity, like websites.

In other words: the rights holders want Pandora to be paying sums just shy of the established operators' entire turnover, just for rights. Never mind the other costs facing Pandora.

No wonder Pandora felt it couldn't afford to continue. It's up to you to decide if PRS-PPL-MCPS are shortsighted, greedy, or just hoping to screw as much cash out of the internet as they can before they're dumped and replaced with an organisation more suited to the new music world.

[Thanks to Alan C for the link]

Pandora boxed

"Rutger Hauer" has shared with us an email he's just received from Pandora, the streaming music service based on the Music Genome Project. It's been entertaining listeners with a choice of music that reflects their tastes. Up until now, at least:

As you probably know, in July of 2007 we had to block usage of Pandora outside the U.S. because of the lack of a viable license structure for Internet radio streaming in other countries. It was a terrible day. We did however hold out some hope that a solution might exist for the UK, so we left it unblocked as we worked diligently with the rights organizations to negotiate an economically workable license fee. After over a year of trying, this has proved impossible. Both the PPL (which represents the record labels) and the MCPS/PRS Alliance (which represents music publishers) have demanded per track performance minima rates which are far too high to allow ad supported radio to operate and so, hugely disappointing and depressing to us as it is, we have to block the last territory outside of the US.

Based upon the IP address from which you recently visited Pandora, it appears that you are listening from the UK. If you are, in fact, listening from the US, and are denied access from Pandora on or after January 15th please contact Pandora Support: pandora-support@pandora.com.

It continues to astound me and the rest of the team here that the industry is not working more constructively to support the growth of services that introduce listeners to new music and that are totally supportive of paying fair royalties to the creators of music. I don't often say such things, but the course being charted by the labels and publishers and their representative organizations is nothing short of disastrous for artists whom they purport to represent - and by that I mean both well known and indie artists. The only consequence of failing to support companies like Pandora that are attempting to build a sustainable radio business for the future will be the continued explosion of piracy, the continued constriction of opportunities for working musicians, and a worsening drought of new music for fans. As a former working musician myself, I find it very troubling.

We have been told to sign these totally unworkable license rates or switch off, non-negotiable...so that is what we are doing. Streaming illegally is just not in our DNA, and we have to take the threats of legal action seriously. Lest you think this is solely an international problem, you should know that we are also fighting for our survival here in the US, in the face of a crushing increase in web radio royalty rates, which if left unchanged, would mean the end of Pandora.

We know what an epicenter of musical creativity and fan support the UK has always been, which makes the prospect of not being able to launch there and having to block our first listeners all the more upsetting for us.

We know there is a lot of support from listeners and artists in the UK for Pandora and remain hopeful that at some point we'll get beyond this. We're going to keep fighting for a fair and workable rate structure that will allow us to bring Pandora back to you. We'll be sure to let you know if Pandora becomes available in the UK. There may well come a day when we need to make a direct appeal for your support to move for governmental intervention as we have in the US. In the meantime, we have no choice but to turn off service to the UK.

Pandora will stop streaming to the UK as of January 15th, 2008.

Again, on behalf of all of us at Pandora, I'm very, very sorry.

So another innovative service bringing new music to audiences is axed - and not even due to the greed of the labels, but down to the increasingly-inflexible collection agencies. It's difficult to understand why bodies which supposedly are there to represent the interests of musicians is forcing closure of services which are building their audiencess and offering to make fair payments for the music.

The irony, of course, is that by shuttering services which set out to do the right thing and pay what they can, the MCPS/PPL are merely encouraging the emergence of models which sidestep the legal structure altogether.

The labels - slowly, too late - are starting to realise their strategies are failing; it looks like we're going to have to wait an age for the change of mind to filter through to their front organisations.

Pandora opens box

Could it be that Scooch's entry for the Eurovision Song Contest is little more than a derivative, second generation copy of something else?

I believe the answer is "well, duh"; but now Erin Magnusson - who trades as Pandora in Sweden has claimed that Flying The Flag is, actually, her song No Regrets. She's calling for Scooch to be disqualified from the contest.

Per Herrey, legal adviser for the Swedish Musicians’ Union, told me: “Eurovision rules state they cannot use a song that has been released before and the melody of the chorus is the same as Pandora’s.”

Now, we're neither Swedish, nor a lawyer, but we can see a bit of difference between "a song that has been released before" and "a song which, to some ears, appears to have the same melody in the chorus".

Scooch, for their part, point out that they've never heard of Pandora, or heard her music before. However, we do understand they're learning the chorus to My Lovely Horse as a fallback.