There is a lot to digest here. How Pandora works, what are the motivations of the various players, are songwriters being paid fairly?
At the center of this conflict is the consent decree:
Under a “consent decree” issued by the Justice Department in 1941, ASCAP and the other main publishing royalty organization, BMI, which together control about 90% of all commercially available recorded music, are obliged to grant blanket licenses to anyone (mainly radio stations) requesting them. When a fee can’t be agreed, a rate-setting court decides the percentage amount of royalties these license holders pay in exchange.
This arrangement makes it logistically possible for the radio business to exist—a station effectively only needs to deal with two companies, rather than millions of artists, composers, and publishers, to get access to a vast array of music. And songwriters don’t have to spend time worrying about negotiating or policing the licenses for their work.
Unlike old-fashioned radio companies, internet-based services like Pandora are also required to pay separate performance royalties, which go to record companies, and then performing artists. In fact, this is Pandora’s single biggest cost. It paid out 49% of its revenue last year in performance royalties, compared to 4% in publishing royalties, which go to publishing companies, and eventually songwriters.
Radio has been around for a long time. Pandora is a relative newcomer:
Pandora started its internet radio service in 2005. A five-year, experimental accord agreed with ASCAP that year was one of the factors that allowed it to do so. By 2011, when the company went public, it had amassed 80 million registered users, and was valued at about $2.5 billion.
Since then Pandora’s rise has been meteoric. At last count, the company had more than 200 million registered users (75 million of them were active, or logged in, last month) and accounted for 9% of all radio listening in the US.
The conflict touches on all aspects of the music business. For this all to work, every part of the massive machine needs to get paid including, most importantly, the songwriters who create the music in the first place. A terrific read.