Pandora Founder: We Pay Artists Really Well, Now Let Us Stop

Pandora founder Tim Westergren just published a curious humble-brag of an article, which has predictably rippled across the blogosphere. In it, he explains that his plucky company is super successful and can totally afford to pay the artists it features tons of money; but it sucks being Pandora because the market share is so small and all these licensing fees are killing it. So he shouldn’t have to pay those artists so damn much.

Come again? Let’s start from the beginning. Here’s the intro to Westergren’s post:

Have you heard of Donnie McClurkin, French Montana or Grupo Bryndis? …They are artists whose sales ranks on Amazon are 4,752, 17,000 and 183,187, respectively. These are all working artists who live well outside the mainstream – no steady rotation on broadcast radio, no high profile opening slots on major tours, no front page placement in online retail. What they also have in common is a steady income from Pandora. In the next twelve months Pandora is on track to pay performance fees of $100,228, $138,567 and $114,192, respectively, for the music we play to their large and fast-growing audiences on Pandora. And that’s just the tip of the iceberg. For over two thousand artists Pandora will pay over $10,000 dollars each over the next 12 months (including one of my favorites, the late jazz pianist Oscar Peterson), and for more than 800 we’ll pay over $50,000, more than the income of the average American household.

Westergren goes on to note that super famous artists like Drake and Coldplay make more than $1 million a year from Pandora, and that it’s pretty awesome how much money they’re paying everyone in these shitty recessionary times, this age of the desiccating music industry. But Westergren promptly changes his tune, and complains that a “predatory licensing fee orchestrated over ten years ago by the RIAA and their lobbyists in Washington has devastated internet radio,” he writes, nodding to steeper licensing rates for internet radio companies. “After spending years building an audience, the original three largest webcasters (AOL, Yahoo! LaunchCast and MSN) fled the business after the last rate hike was imposed. This is not a recipe for a sustainable industry.”

Okay. Westergren is arguing that he shouldn’t have to pay steeper licensing fees than traditional or satellite radio. Thing is, if he didn’t, he would never be able to brag about paying unknown artists six figures. He supports a bill currently headed to Congress that would slash internet radio royalty fees for artists to under 10%, around where it is for SiriusXM and conventional radio. Forbes points out that would wipe out impressive earnings detailed in the Pandoraman’s post: “Westergren likes to point out that Pandora is ‘only 6.5%’ of total radio listening in the U.S. But if he's successful in slashing his royalty bill by 80%, he'd have to reach north of 30% just to restore his payments to 2012 levels.”

Got that? Pandora would have to account for 1/3rd of all radio listening in the United States if it were to match the rates it’s paying out today.

Now, those rates may well be too high; Pandora may be the only entity left on the planet that one could describe as paying a few fortunate non-mainstream musicians a bit too much. (Remember, Spotify pretty much screws artists over) We certainly want institutions that fairly pay artists to stick around — there are so few of them left — yet Pandora still isn’t profitable under the current licensing regime.

All of which puts Westergren in a tough spot. He may be wildly optimistic about Pandora’s future. Enough to sincerely believe that drastically slashing his royalty fees would allow his company to gain enough market share to eventually be able to pay artists even more. But this is magical thinking. It’s like calling for more tax cuts for the rich; they’ll free everybody up to earn and invest even more, and eventually the lower rates will generate even more revenue than the high ones!

Not. There needs to be a middle ground for artists, and, as Forbes notes, that’s not even being considered. Internet radio may well be one of the most crucial revenue streams for the musicians of the future; we need to find a suitable way to both protect artists’ interests and nurture growth in the sector. Otherwise, we might have to say goodbye to Grizzly Bear after all.