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Pandora pays musicians a royalty of 2 cents per listener per hour—which amounted to roughly $136 million last year on $274 million of gross revenue.

BATTLE ROYAL SHAPING UP:
MUSICIANS VS. PANDORA

Musicians First Coalition Hopes to Derail Pandora’s Campaign to Lower What Tim Westergren Says Is an Unfairly High Royalty Rate
The Musicians First Coalition is rallying against Pandora’s attempt to lower the royalty payments to musicians in a bid to boost its profitability, the N.Y. Post reports. The coalition, which represents hundreds of artists, is expected to begin a P.R. campaign against Oakland-based Pandora that will include alerting its members of the company’s effort to trim its millions in royalties payment through a Capitol Hill push.

Pandora pays musicians a royalty of 2 cents per listener per hour—which, the company said in a blog post, amounted to roughly $136 million last year on $274 million of gross revenue. Pandora is pushing a bill before the House of Representatives that would lower that rate.

The group argues that Pandora royalties amount to just $7.92 per listener annually in return for 480 hours of consumer engagement per year—a level they believe is fair.

SoundExchange, which collects fees from Pandora and SiriusXM, among others, said it received $204.4 million in total royalties in the first half of 2012. But analyst Martin Pyykkonen estimates that Pandora’s content costs will jump to $148.7 million this year and $261.6 million by 2013.

Pandora’s beef lies in the fact that it pays artists’ royalties while over-the-air radio rivals don’t pay performers a dime, the Post’s Claire Atkinson points out in the story. In a July blog, Pandora founder Tim Westergren (see 8/27 profile) complained that his royalty payments amounted to “approximately 50% of the total revenue. In the same year, SiriusXM, on revenues of $2.7 billion, paid $205 million in royalties, or 7.5%. Radio delivered over cable television pays 15% of revenue. Radio delivered over the FM/AM spectrum pays nothing to performers.”

Pandora, in reporting Q2 results, said total listener hours rose 80% to 3.3 billion in the quarter. In July, Pandora’s share of all U.S. radio listening rose to 6% from 3.5% a year earlier. Pandora reported a break-even second quarter, exceeding Wall Street forecasts.

“They’re arguing they need a special deal, even while they become more profitable,” said a spokesman for the MFC.

Pandora’s rates, which are federally set, won’t be reset until 2014. That prompted the company to lean on Congress to change the law. Rep. Jason Chaffetz (R-Utah) is sponsoring a bill, the Internet Radio Fairness Act, which seeks to allow digital radio stations to lower their rates. Chaffetz has received political donations from Westergren.

Meanwhile, a bill being considered by Rep. Jerrold Nadler (D-NY) aims to compel terrestrial radio to pony up for artist royalties. Nadler’s draft legislation, released this month and called First Act, is designed to protect the music industry.

“The momentum is with Pandora,” said Pyykkonen. “They’re asking for equality, not going to zero.”
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