Pandora Radio's Box of Royalties

According to Greek mythology, Pandora opened a jar referred to as "Pandora's box", releasing all the evils of mankind.

But recently, Pandora Radio released all the evils of the music industry upon the radio industry.

Pandora Radio CEO Tim Westergren surprisingly opened Pandora Radio's box for his competitors in terrestrial radio when he came out publicly for the repeal of radio's performance tax exemption.

The record industry is pushing for the ability to tax radio further for helping them sell music. Go figure.

I have known Westergren to be a good man and he's a musician so you can tell where his sympathies lie.

Nonetheless, the way Westergren did it and the timing appear suspect to some.

You may remember that Pandora Radio itself -- wildly popular among consumers -- came this close to having to shut down.

Westergren can thank the record labels for that. They wanted to tax him into oblivion along with other webcasters. In fact the Copyright Royalty Board (CRB) decree was tantamount to 100% taxation just for the right to play music online.

Of course, Westergren and other webcasters cried foul.

A group led by my friend Kurt Hanson (AccuRadio and RAIN) went to bat for them and came up with an improved if not very imperfect plan to pay money they really don't have to the labels for use of their music. But it saved Pandora's bacon for sure.

Westergren was mum on whether radio should be subject to more music taxes until last week.

That's when he issued his very own fatwa on what's fair is fair.

Disappointingly, Westergren backed the artists once he had his deal in hand and he was quoted in Taylor On Radio-Info as saying: “We, along with the artists whose music we play, strongly support the establishment of a level playing field, a truly fair system, as articulated in the Performance Rights Act, H. R. 848.”

What's worse, Westergren issued a jihad (sorry about all the militant Muslim imagery) for his Pandora Radio listeners -- who number more than Sirius and XM together -- to flood House Speaker Nancy Pelosi's office and fight for what is right, gosh darn it.

The timing is suspicious but he tells me his motivation is pure. Here is Westergren's rationale:

1. It’s right and fair for artists to get paid.

"In spite of the difficult negotiation we’ve had, we have never advocated that Pandora not pay royalties; only that the amount be reasonable and sustainable. You’re right, they did have us for lunch – might even say we got regurgitated! But we’ve never quarreled with the fundamental notion that performance fees are fair – even though we provide a tremendous promotional benefit to musicians. I’m a long time working musician myself, so this is near and dear to me (as it is to the other working musicians at Pandora)".

2. The bill addresses the parity issue which remains a serious problem.

"I know you know all about this structural problem, but it’s still seriously unfair. The bill contains language that would hold Pandora to the same standard in rate setting as other forms for radio. We compete, as you have written about ad nauseam, with broadcast radio everywhere. There’s no reason we should pay so much when satellite and broadcast pay so little... Or nothing".

Westergren is aware that it may appear as if Pandora is trying to hurt broadcast radio, but he insists it is really not the case.

Now that he can see Pandora's performance payment schedule for years to come, Westergren's main competitor -- radio -- would be hurt by imposition of more music taxes. That's like kicking an industry when it is down -- which is fair, I guess, in a capitalistic world -- but disappointing to those who hold Pandora to a higher standard.

When I was a professor at USC, Pandora was revered as Westergren well knew. He visited several times and felt their adoration. Since many music students attended his sessions, I suspect they might agree with his stance even if they noted that the timing is sketchy.

You hear me talk about the importance of generational media and this is a good lesson.

The next generation looks up to Pandora and expects that Pandora would do what is right -- which on the surface could appear to be -- help those poor starving musicians.

They probably would not like that Pandora decided to stick up for the artists only after it had its only deal safe and secure.

By the way, we know that the starving musicians will continue to starve because of the record labels, but it sounds better than "help those starving record execs".

What won't sit well with the next generation -- if and when they figure it out -- is any perceived ulterior motive, a quid pro quo, if you will, where Pandora gets its deal and radio gets kicked while Pandora is trying to compete with them.

The timing couldn't be better for Pandora.

Pandora Radio is trying to monetize its mass audience posting its best quarter in history and now that royalties are not going to shut it down, I guess Westergren is playing hardball with its competitor.

Except he didn't need to.

Radio is its own worst enemy.

He's making a serious strategic mistake to bloody his hands with the terrestrial radio performance tax repeal issue.

All he needs to do is let radio execs kill their own business off -- as they are currently doing.

The best thing radio stations can do is stop playing so much licensed music.

They don't have the guts. Not even, a little bit. Radio execs could announce their stations will respond to local interests by adding non-published artists and bands to their playlists and that effective immediately they are adding 15% of unlicensed music to their playlists and playing 15% less of licensed music.

That would send a message loud and clear.

Not just to the labels and SoundExchange, but to radio listeners bored with the same old same old. There's a lot of good music out there besides the handful of things radio plays over and over again -- irritating their listeners.

So in the end, it's certainly Westergren's right to get tough with radio although in my opinion it is none of his business.

Pandora made it by being one step above everything else in quality and concept.

Fortunately, Westergren alone does not have the heft to swing momentum to the label's side on repealing radio's royalty exemption, but nonetheless you'd expect better from a great guy with a great product.

What's tragic about all this is that John Simson, the SoundExchange head negotiating for the labels, Westergren and many artists just don't get that they owe radio as much as radio owes them.

The radio position is -- we played the songs that made the record labels rich.

The labels position is -- that they provide the free music that allows the stations to get rich.

Both sides will go down in flames until they sit down and sincerely learn to see things from the other's point of view.

Then compromise until it hurts -- not one side, but both -- because right now radio and the music industry can't live with each other but can't exist without each other.

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