Pandora Radio entertains 60 million users a month with doubling revenue, yet this success is marred by oppressive royalty fees that make its growth a financial burden.
Pandora pays royalty rates for music played based on overall revenue, not profits, and pays higher rates than terrestrial radio stations. Pandora is lobbying Congress to lower its rates so that it can stay in business. Some in Congress believe terrestrial radio should instead pay the same higher rates that Pandora and internet streaming companies currently pay.
Artists and labels are fighting back against any decrease in the rates paid. They claim the rates per stream are already fractions of a cent providing them with little income.
Laura Balance, co-founder of Merge Records, representing Arcade Fire and Spoon, told the Huffington Post "[Rates] should be higher. It doesn’t make me feel badly for [Pandora] at all that they should be paying out half of their revenue or more to artists – that is entirely how their revenue is generated."
But this is, of course, not true. Pandora generates revenue by providing a service that adds value to consumers. Not simply a radio station, Pandora creates custom playlists for listeners based on their interests, and adapts the playlist based on what the listener likes and dislikes. The result is listeners might discover new music they never knew about.
Music labels still seem to believe their content is the sole value generated by any music related technology company. There’s a reason music labels have spend the past half century illegally paying radio stations to play their artists – because the radio stations have influence over their audience and are valuable promotional resources for artists. Pandora, through all its algorithms, software interfaces, and community building, offers incredible value to consumers and back to music labels. Music labels should consider what happens if their demands put Pandora and other streaming services out of business. Do they expect consumers will just start buying the music they tell them to? Or will consumers move to more piracy and music sources that provide no revenue. Eventually, I hope, music labels will start recognizing the value they gain from embracing new music services rather than trying to drain them out of existence. Music labels might discover they are on the loosing side of that regime.