Pandora Clashes With Musicians Over Song Payments

Singers perform on Capitol Hill before hearing on Internet Radio Fairness Act

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Andrew Harrer/Bloomberg via Getty Images
Ben Allison, David Israelite, Cary Sherman, Jeff Smulyan, Steven Newberry, Time Westergren, and Christopher Guttman-McCabe listen during a hearing in Washington, D.C., U.S., on Wednesday, June 6, 2012
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In its long-running battle with Pandora over royalty payments for streaming songs, the record business dispatched its most potent weapon – prominent musicians – to Capitol Hill this week. Before last Wednesday's hearing about the Internet Radio Fairness Act, which Pandora is backing to correct what its executives call an "astonishingly high royalty burden," five of the world's top songwriters showed opposition to the bill with microphones, guitars and a piano at the Rayburn House Office Building. Linda Perry played "Beautiful," the hit she wrote for Christina Aguilera, and declared: "Pandora wants to make money – more money – off the thing we created."

The House bill pits the Internet-radio giant, which had 60 million listeners in the last 30 days, and its supporters against a business that has been devastated over the past decade by piracy and a shift from $18 CDs to 99-cent downloads. The bipartisan bill's sponsor, Rep. Jason Chaffetz (R-Utah), argued: "Internet radio should be a boon to the entire audio market, but instead it's barely hanging on." But Rep. John Conyers (D-Michigan) said it "would cut royalties and deprive artists of the fair-market value of their work."

The State of Streaming Music

The songwriters, part of a National Music Publishers Association showcase on Capitol Hill, were supporting record execs and some 125 artists, including Rihanna, Katy Perry and Billy Joel, who signed a letter opposing the act earlier this month. Perry, Kara DioGuardi (a former American Idol judge who has written hits for Britney Spears and Kelly Clarkson), Desmond Child (co-writer of Bon Jovi's "Livin' on a Prayer"), BC Jean (co-writer of Beyonce's "If I Were a Boy") and Lee Miller (a prolific country hitmaker) said Pandora users streamed their songs 33 million times during 2012's first quarter – and they received $600. "That is insane," DioGuardi told Rolling Stone afterwards. 

"You can't make songwriters pay so that your business model works," DioGuardi continued by phone Wednesday on her train back to New York. "You have to rework the model." 

Pandora responds that U.S. laws governing Internet-radio royalty payments are out of whack compared to other radio services, including FM and Sirius XM. The company's chief executive, Joseph Kennedy, testified Wednesday that Pandora makes up seven percent of overall radio listening, although it will pay artists and labels almost $250 million this year – that's more than 50 percent of the company's revenue, compared to 7.5 percent for satellite radio and 15 percent for cable-television music channels. 

Kennedy said in an interview that the bill would not set rates but aims to correct a "broken process" for doing so. "This is real money flowing to the artists, and we love that it's meaningful. I believe, if totally unfettered, Internet radio would totally replace FM," he says. "There's truly a win for everyone – for artists, for innovators who develop great digital services and for the listening public – if we can get this right." 

Some artists support Pandora. Patrick Laird, a cellist with the New York indie band Break of Reality, testified that digital album sales increased by 290 percent in the year after Pandora added its music to the playlist. The band has had 16 million Pandora plays, which Laird calls a crucial "discovery tool" that has led to lucrative concert bookings.

"If Internet radio companies were given a chance to flourish, more than they are now, then the amount of money I could make would be so much more than royalties," he says by phone. "It's understandable that's what you're hearing – the people with the money have the connections of these big companies. But 70 percent of artists from Pandora are independent and largely unrepresented from this debate."

The Internet Radio Fairness Act would affect mainly performers and their record labels. Separately, earlier this month, Pandora sued the American Society of Composers, Authors and Publishers to reduce what David Israelite, president of the National Music Publishers Association, says is already a low royalty rate of four percent. "Pandora is waging war on all of music, but on two different fronts," Israelite says. 

At the Rayburn House Office Building, where the five songwriters played their showcase last Wednesday, Miller performed his hit for Trace Adkins, "You're Gonna Miss This," and gave an emotional plea for his livelihood. "I don't think it was a protest," he said afterwards. "I think it was a 'Hey, this is our side, and this is who we are.'"