The recent blog post by Pandora founder Tim Westergren is as close as the company has ever come to admitting that it cannot survive without government intervention. In the post, Westergren urges the passage of the “Internet Radio Fairness Act (H.R. 6480 and S. 3609),” which will alter pop song royalty rates in Pandora’s favor.
Because Pandora is an internet business that plays millions of songs individually for its millions of listeners, it ends up paying about 50% of its revenues back to record companies. Sirius XM, meanwhile, pays about 10% of its total subscription fees back to record companies as song royalties.
Westergren wants the system changed so that it’s a “level playing field.”
The way it’s framed, it sounds unfair for Pandora. But one of the reasons Pandora pays more is because it is obligated to pay a per-song fee that is a fraction of a penny per song. It’s not on a percentage system, like Sirius, in other words.
So there’s an argument to be made that Pandora’s royalty expenses aren’t high because the system is unfair; they’re high because Pandora plays millions more songs than Sirius does.
We’ve made this argument repeatedly over the months: That Pandora is a broken company absent government intervention in its favor to change the royalty fee. Its technology — which “learns” what you like and don’t like, and then suggests new songs — is undoubtedly innovative. But the fact that it needs a bailout to survive is decidedly old school.
The bill’s passage is not assured. Lobbyists representing the music industry don’t want to see their fees from Pandora reduced.