This week Pandora announced over $50 million in annual revenues. This was, for many, big news. Even bigger news was the announcement last month that they were profitable in the 4th quarter of 2009, and tracking full-year profitability in 2010. But the information that seemed to rub many industry critics the wrong way was the fact that Pandora paid $30 million in music royalties. Many pundits commented that this was outrageous, Pandora shouldn’t have to pay for the music, it’s all because of very inconvenient copyright laws.
Tim Westergren, Pandora’s co-founder, was gracious regarding this issue. In an interview with CNNMoney.com this week, Westergren stated, “The silver lining of our battle over royalties is that [the music industry] came to know our business, and they’re getting to understand that we’re good for them,” Westergren said. “Like terrestrial radio, we’re fundamentally a promotional device for music … but we’re an enormous, targeted promotional machine.”
A few years ago, a less-gracious Mark Lam, CEO of the internet radio service Live365, told me bluntly during a panel prep session at the NAB Conference in San Diego that “if it weren’t for royalty payments for music, Live365 would be extremely profitable.” Those pesky royalties at work again, undermining solid business models. It’s enough to make you petition Congress, Parliament and the World Court to abolish copyright. After all, does it really serve the public good?
I’ve been on all sides of this issue over the past fifteen years, it’s not one that I can come out squarely on one side or the other. Having worked for Napster in 1999-2000, EMI 2000-2006 and Limewire in 2006-2007, I find myself hopelessly conflicted, both sides made some really good points. Now that TAG, my consulting firm, advises both rights owners and music services, my internal conflict rages on.
On one hand, I do firmly believe that artists, songwriters, labels and publishers all deserve reasonable compensation for their creative efforts. It is a job, one that relies on intellect and creativity, not that different than that of a lawyer. I therefore find it interesting that so many legal minds devote their time to the argument that intellectual property doesn’t hold the same rights of ownership afforded to physical property, some even going so far as to deny it has any rights at all. Ironic that the basis for a lot of their opinions comes from Westlaw, a service that flourishes based on its copyrighted database. Many now argue give the music away for free and artists will find their real income from touring and merchandise.
As the manager of a very talented singer-songwriter, Sara Have, I have to tell you it isn’t that simple. For established artists like Prince, Smashing Pumpkins, Radiohead, those who have established both a brand and a loyal following, it’s an easier path. For example, Billy Corrigan announced a few months ago that the new Pumpkins release was going to being given away for free, 44 tracks released in a serialized fashion on the net, like a Saturday afternoon Flash Gordon episode. At this point in the band’s career, this will probably be a very productive digital stunt that will bring valuable attention to their next international tour.
For Sara, it’s not as easy. Her nine-state three-week club tour has her playing to a potential audience of 7500 fans. With tickets averaging $10, that’s a $75,000 gross. Let’s figure she sells out and gets 60% of the door, that’s $45,000. After band salaries, travel/hotel and meals, she will be lucky to come home with $20,000. She won’t tour again until May, so that money has to last. While she has been giving away tracks on various web outlets since her album’s release, she really isn’t financially geared to making all her music available for free, it just isn’t practical. She will continue to sell on iTunes, Amazon and other web outlets, along with selling CDs at her shows. She needs copyright.
On the other hand, services like Pandora, PlayMe, Spotify, MOG, Rhapsody and Napster need both reasonable rights and reasonable terms. New services need to be able to find a streamlined path to acquire the needed rights & terms. The current construct doesn’t work. While rights holders should be, in theory, allowed to set their market price for their assets. In practice, the pathway doesn’t work. It takes too long, the mechanics are arduous, and the outcomes are definitely not a win-win scenario.
As I’ve expressed in previous missives, all parties will inevitably have to accept some form of blanket or compulsory licensing, revenue-sharing models with complete transparency. ISPs won’t be able to continue to sit on the sidelines, they will have to come to the table.
Copyright will survive, but only if the paradigm evolves. I believe it will, I don’t relish the alternative.