Pandora Internet radio - artists get less than previously claimed

A recent blog post mentioned here, by Tim Westergren, Founder of Internet radio service Pandora, claimed that little-known artists Donnie McClurken, French Montana and Grupo Bryndis were earning significant sums. Least-known of the three, Grupo Bryndis, were said to be on track to earn $114,192 in the current year. That's a lot of money to most musicians, and a very welcome sign of good things to come in the future of the Internet.

However, not all is quite how it seems. $114,192 is in fact the sum paid by Pandora, not the amount received by Grupo Brindis. Pandora's payments for the use of music on their service are made to SoundExchange, the non-profit performance rights organization that collects statutory royalties from satellite radio, Internet radio, cable TV music channels and similar platforms for streaming sound recordings in the USA.

SoundExchange divides the net royalties 50% to the owner of the sound recording, 45% to the artist and 5% to session musicians, after a taking an administration fee of 5.3% straight off the top. (Pandora pays an additional smaller amount to songwriters, but I'll leave this issue until another day.)

Looking at the figures quoted by reliable sources on the Internet and elsewhere, it seems that Pandora is paying around 50% of their revenue to the music industry.

So if a certain artist or band isn't earning $10,000 a year as Westergren might have implied, at least it is earning $4500. And their label (which put up the money to get them on the Internet 'air' in the first place) gets paid too. And don't forget the 5% left over for session musicians.

For me, it's hard to see the negative in this. Comments I have seen such as 'Pandora must die' simply do not reflect the fact that any payment at all to musicians for Internet performances of their music is a huge advance over the 0% revenue share from piracy (which largely exists to make a profit for the pirates). Pandora represents progress and a means for musicians to earn a living other than from the concert tickets and T-shirts that without paid-for music on the Internet would otherwise be the only viable business model.

The trick is going to be to balance out the revenue so that musicians and labels get a fair share, while allowing businesses like Pandora to be profitable. If Pandora can't be profitable, then there will be no money to be shared by anyone.

Clearly, musicians need to press hard for their fair share. Any business of whatever kind will always seek to reduce the cost of their raw materials. So Pandora will always seek for its payments to musicians to be less, but hopefully not so much less that it kills the geese that are laying the golden eggs.

In the shorter term, I see a lot of debate and argument. In the longer term however I see a valuable revenue stream that will put money in the pockets of the people who truly deserve it - musicians, music-loving labels that finance their work, and indeed the services that provide the listening public with access to music. There's a potential win-win-win here and I for one very much look forward to it.