Pink Floyd - when near free hurts

Profile picture for user gonzodaddy By Den Howlett June 25, 2013
A war is brewing over royalties paid to musicians. Pink Floyd has come out as one fo many voices opposed to Pandora's support of proposed legislation that would see costs to Pandora slashed and rights removed.

pink floyd
There is an ongoing war in the music business between recording artists and Pandora that serves as a great proxy for the future value of intellectual property and how service business models can go horribly wrong. Pink Floyd are the latest to enter the fray:

Nearly 90% of the artists who get a check for digital play receive less than $5,000 a year. They cannot afford the 85% pay cut Pandora asked Congress to impose on the music community.

Last year, we joined over 130 other bands and artists to oppose Pandora's campaign to cut the royalties paid for digital radio spins. Widespread artist opposition stopped them last year, so this year Pandora is trying to enlist artists support for their next attempt at passing this unfair legislation.

At the heart of the argument is the fact that in the US, terrestrial AM/FM radio stations are exempted from paying royalties to artists while internet radio does not enjoy the same exemption. Pandora argues that this is unfair and wants to get on a level playing field. Pandora is hoping that by lobbying Congress, new proposed legislation which also removes the right to collective bargaining over royalties will allow it to reduce its music royalty costs from 50 percent to 10 percent of revenue. Pink Floyd sees it differently:

...a business that exists to deliver music can't really complain that its biggest cost is music. You don't hear grocery stores complain they have to pay for the food they sell. Netflix pays more for movies than Pandora pays for music, but they aren't running to Congress for a bailout. Everyone deserves the right to be paid a fair market rate for their work, regardless of what their work entails.

Based upon past outcomes, the latest effort will likely fail, in part because the US radio lobby is powerful but also because the musicians' lobby groups are also noisy - and I don't just mean the extent to which the sound stage gets cranked up. Unlikely bedfellows when business models are under threat? You bet!

Pandora's business model relies on advertising rather than subscriptions to the service. As I have noted before, mass media that relies on an ad driven model is in a race to the bottom. Pandora needs to capture a huge chunk of the market in order to sustain an advertising model. That in turn costs a small fortune in marketing costs. Despite having some clever technology that allows users to create their own radio 'stations,' Pandora has recreated an old, outdated model. It's what Phil Wainewright dubbed SoSaaS - Same old Software as a Service - back in 2005.

Despite being in business for 10 years and raising $235 million in an IPO, Pandora shows no sign of turning a profit and is burning cash. Most recently, its CEO announced he is looking for a replacement while SEC filings show that one of the founders is cashing out at a rate of some $1 million per month. Doesn't look good - does it?

Image credit: Fanpop