This has left many readers with two impressions:
- Pandora only paid $16.89 for 1 million plays.1
- Pandora pays much lower royalty rates than Sirius XM and especially terrestrial AM/FM radio.
Step 1. Lowery and his royalty reports clearly state he only owns 40% of the songwriting. As he says, this means the total fee to the songwriters was $16.89 x 2.5, or $42.23.
Step 2. Songwriters actually only get about 43.5% of the songwriting/publishing rights. The publisher and the songwriters split the fee 50/50 after the rights administrator’s (BMI in this case) operating expenses, which appears to be about 13%. So the full songwriting/publishing fee was in fact about $97.
Step 3. Pandora also pays a separate royalty for the performance itself, distinct from the songwriting. In 2012, that royalty was $0.0011 per streamed song.2 For 1,159,000 plays, that works out to a total performance royalty of $1,274.90.
After the administrator SoundExchange takes its fee of 5.3%, the performance royalty is split, with 50% going to the recording owner (i.e. record company), 45% to the band/performer, and 5% to any session/backup musicians. So the band in this case received $543.30 for their performance.
Conclusion. By this math:
- Pandora paid a total of about $1,370.
- The band received a total of about $585.
- If Lowery received 40% of the performance royalty, “all he got” for the 1 million plays was in fact around $234.
HOW DOES THIS COMPARE TO SATELLITE & TERRESTRIAL RADIO?
The main issue here is that Lowery cites only dollar amounts for comparison:
- "For frame of reference compare [sic] Sirius XM paid me $181"
- "Terrestrial (FM/AM) radio US paid me $1,522"
This is quite simple: those sources paid him a lot more primarily because a lot more people heard his song via those sources.3 For example, AM/FM paid him $1,373.78 for 18,797 spins. That’s 7.3 cents per spin. If only 10,000 listeners heard each spin, terrestrial radio is in fact paying just half the songwriter fee Pandora paid him per listener. And of course it’s likely to have been far more than 10,000 – even the intentionally miniscule South Dakota radio station Pandora just bought manages to average 18,000 listeners.
Even more importantly, FM/AM paid him NOTHING for the performance of the song. Unlike most industrialized nations, terrestrial radio stations in the US have never paid performers anything.4 It’s hard to believe, but true: they can play John Coltrane’s version of “My Favorite Things” for decades and never pay him or his estate a single cent.
Lowery doesn’t disclose the Pandora performance royalty but he declares it “unsustainable.”5 This is a fascinating perspective: apparently in Lowery’s view a performance royalty of $1,275 is unsustainable but the AM/FM world of $0 is totally fine?
AM/FM radio royalty payments are contractually capped at just 1.5% of revenues, meaning a measly 0.7% of radio revenues go to the actual songwriters – and 0% to performers.6 Pandora would indeed love to get down to those much lower rates that competitors like iHeartRadio already get to pay because they’re owned by a terrestrial radio conglomerate. Strongly implying that Pandora’s royalty rates are already far worse than AM/FM seems just plain misguided.A CONCLUDING THOUGHT
None of this means Pandora ought to pay less in royalties. On the contrary, it seems quite likely that others should be paying more. And perhaps the non-artists involved in the transaction shouldn’t be taking 53% of the total for their services. But attacking Pandora with intentionally misleading statistics just undermines the credibility of the argument.
He does clarify in the footnotes that $16.89 is only for 40% of the songwriting and there is a separate performance royalty, but certainly the headline & coverage could leave many with the impression that $16.89 was everything. ↩
Pandora’s current agreement with SoundExchange has it increasing $0.0001 per year. That may sound small, but it’s a 8% annual average increase, which doesn’t seem too bad in a world of 2% inflation. ↩
There are admittedly other complexities, such as the “interactive” nature of Pandora. ↩
Even worse, because the US doesn’t provide this right, other countries don’t have to pay US artists for foreign performance broadcasts. ↩
He previously called the performance royalty “also quite lame”, but appears to have quietly edited the piece. ↩
Obviously very different businesses, but 1.5% sure makes iTunes’ 70% of revenues to the music industry sound a bit better. ↩