Roughly 23% of Sound Exchange’s total revenues in 2010 came from Pandora, based on publicly reported info and some quick math by Live365 Attorney Angus MacDonald.
According to SoundExchange‘s Annual Report for 2010, the collections agency for the RIAA collected statutory royalties from all statutory classes of services in the amount of $263,593,310. That number includes royalties from services other than webcasters, such as satellite, cable services and subscription services.
According to Pandora’s recent SEC filing (dated 5/26/11), Pandora’s revenues were $137,764,000 for its last fiscal year, which ended Jan. 31, 2011. MacDonald notes that his comparison uses Sound Exchange’s calendar year reporting and Pandora’s fiscal year reporting which is February 2010 through January 2011, so it’s not entirely accurate, but very close.
MacDonald uses a factor of 45% as the percentage of Pandora’s overall revenues that the service pays to SoundExchange because that was the percentage that the service paid in their fiscal 2010 year. However, MacDonald also notes that with the newest quarterly report, Pandora’s percentage of revenues owed to Sound Exchange has increased to 53%.
Says MacDonald, “Using the lower figure – i.e., 45% – means that Pandora paid $61,993,800 ($137,764,000 * 0.45) to SX in the 12 months that ended Jan. 31, 2011. That $62 million is 23.52% of SX’s total revenues ($263.6M) collected in CY2010.” He adds that this is 23.5% of Sound Exchange’s overall revenues, the percentage of revenues the agency sees from Internet radio alone would be much higher.
Last week at the NAB Radio Show in Philadelphia, RAIN hosted a side channel of digital audio related programming in the form of three short panels and a few quick presentations. I spoke on a panel hosted by Dan Halyburton of RadioTime, along with Les Hollander of Pandora, and Matt Sunshine of Center for Sales Strategy. We talked about the business side of Internet radio, and considered the impact of mobile, measurement, and the future.
One of the “vignettes” at the Summit featured SoundExchange’s Jon Simson and Bryan Calhoun. The discussion by SoundExchange was interesting for a couple of reasons. After battling with streaming stations for years over performance copyright issues centered on rate, reporting, and compliance, they came to offer an olive branch, of sorts. Simson took the time to explain how hard they strive to find every last performer and send them every dollar they deserve of the fees online stations are streaming. He told a few anecdotes of finding old artists that made it personal and real, and that was a good thing. SoundExchange even sponsored the event, which was held in a private room at the Hard Rock Café next to the convention center.
The conversation took a brief, weird turn when Simson warned the crowd that now that rates are settled SoundExchange expects compliance and payments. He even called out one broadcast company for their failure to adhere to the rules, which I though was both antagonistic and counterproductive in terms of the goodwill they apparently intended to convey. Nonetheless, it was a unique moment in the history of Internet radio – the friendliest gesture I’ve seen from the record label side of things, and I’m glad I didn’t miss it.
More to come on the NAB Show and RAIN Summit East this week…
Last week, after news that Pureplay Webcasters had reached an agreement with Sound Exchange on performance royalties, Internet radio industry darling Pandora made more news by announcing support for the Performance Rights Act before Congress. That bill would require AM/FM broadcasters to pay performance royalties as well.
Deep background, for those who don’t have it, is that in 1998 the Digital Media Copyright Act (DMCA) was passed requiring various forms of new media, including satellite and Internet radio, to pay performance royalties on digital media transmissions. Traditional broadcasters have not paid performance royalties. Broadcasters have maintained that the benefits that musicians receive from having their songs played on radio stations is substantial and therefore replaces the need for additional payments.
While I believe that’s true – that the value of playing a song on the radio is substantial – the fact remains that record companies are suffering from an enormous shift in the way music is purchased, and their business is way down. I’ve been saying for a long time that future of the music industry – both record companies and music services (AM, FM, online, whatever) is going to be one of sharing revenue. Radio stations can’t survive if record companies do not find a way to profit.
There are many ways to argue against Pandora’s stance. Just because they have to pay royalties, why does that mean broadcasters should. Isn’t that an eye for an eye mentality? Sure, I think that’s a good point – why should Pandora want broadcasters to be penalized in the name of fairness?
A much better point, also made by Pandora, is that they want to see musicians get their fair share. Because, whether broadcasters like it or not, if musicians and their labels can’t make money, the system is flawed, and the industry is doomed.
Last week, “Pureplay” webcasters and Sound Exchange came to agreement on royalty rates for the use of sound recordings by Internet Radio stations for the period from 2006-2010. The deal, and analysis of it’s benefits, have been well summarized by David Oxenford (the attorney that represented the webcasters) here, and by Kurt Hanson, Publisher of RAIN: The Radio and Internet Newsletter on his blog.
As Hanson explains, the deal benefits “webcasters who … who have aspirations of earning more than $1.25 million in revenues per year — but are not wholly-owned divisions of multi-billion-dollar companies (e.g., AOL & Yahoo and CBS & other terrestrial broadcast groups). Those webcasters, and some of the known parties in the group, are Pandora, AccuRadio, Digitally Imported and Radioio.
Like the deal negotiated by broadcasters with Sound Exchange earlier this year, this agreement saves these webcasters from further costly CRB (Copyright Royalty Board) negotiations, establishes performance royalty rates that are lower than the rates established by the CRB, and gives smaller webcasters fixed percentage of revenue rates until they hit annual revenue marks somewhere over a million per year.
While there are critics, there’s no doubt that this deal benefits the certain group that participated in the negotiations, giving them relief from CRB-established rates. Congrats to David Oxenford, Kurt Hanson, Joe Kennedy, Ari Shohat, Mike Roe, and others who participated in the negotiations – I know from previous experience that it’s a long and frustrating process. More importantly, it’s a very expensive process – other webcasters that benefit from this option owe thanks and perhaps more to the companies that stepped up to get it done.