Last week the Electronic Frontier Foundation, which tasks itself with protecting the public interest with regard to digital rights, got my attention by coming out in support of the Internet Radio Fairness Act. That’s the bill that has been introduced in congress to equalize the performance royalties that various streaming platforms pay around one standard. Currently, different standards are applied to streaming services based on who owns them and the type of services they provide.
From their post on the topic, here’s an excellent explanation of the issue at hand:
Music services aren’t all treated the same, though – Congress gave older, more established companies a leg up. For satellite and cable radio, the judges set prices to give the labels and artists a “fair return” and the music service a “fair income.” In practice, the judges tell these services to pay about 10% of their revenues to the artists and labels. For Internet radio, though, the judges are supposed to set rates based on what a “willing buyer and a willing seller” would do in an open market.1 This sounds pretty good, except that there is no open market, so there’s no consistent benchmark. As a result, judges have set Internet radio royalty rates at cripplingly high levels. Internet stations went to Congress twice, in 2008 and 2009, to get temporary relief from rates that would have put them out of business. Today they pay about 50% of their revenues to SoundExchange.
In case you got lost, they explain that satellite and cable services pay 10% of their revenues in performance royalty fees, while streaming services pay 50%. Simply because the technology is different. These are services that do not provide on-demand access to songs. You can’t download anything.
An article yesterday in the NY Times quotes Clear Channel’s Bob Pittman and Pandora’s Tim Westergren in support of the bill. The two companies compete fiercely as brands, but have paired up to support the bill as leaders in the Internet Radio Fairness Coalition.
MusicFIRST meanwhile, is the coalition of record labels, artists’ representatives, and unions that would like to bring the bill down. They would like fairness, but they’d like everyone to pay based on that “willing buyer/willing seller” arrangement that nets them 50% of revenues. Which would likely drive streaming out of business. And what would happen then you might ask. Would all the younger demos that have gotten so attached to streaming stop listening, or would they go underground and start listening to services that pay nothing? I’m just saying..
2011 revenues for the record industry from streaming music royalties jumped to more than half a billion dollars, according to a year end report by RIAA. Revenues from subscripton services (like Spotify, Pandora One, Rdio, MOG, Slacker) jumped 13.5% to $241 million, and Digital Performance Royalties, paid by all other streaming services (including Pandora) rose 17.2% to $292 million.
In its fiscal year ended January 2012, Pandora paid out more than $285 million in “content acquisition”, the bulk of which is performance royalties to SoundExchange. The time periods don’t match up perfectly because the RIAA report is calendar year, but you get the picture — Pandora’s paying a huge amount to SoundExchange.
Which should make for an interesting next round of negotiations for streaming royalty rates. Tim Westergren has always been very vocal on this topic, stating over and over again that he’s not against a royalty, but that the current costs are too high. With the next round of CRB hearings looming, he’s talking about it again. But this time, he’s coming to the table with over a 100 million registered users. And he’s SoundExchange’s biggest customer.
Pandora’s also got a lot of investors, and they’re working that crowd as well, including this statement in their recent SEC filing:
“Since our inception in 2000, we have incurred significant net operating losses and, as of January 31st, 2012, we had an accumulated deficit of $101.4 million. A key element of our strategy is to increase the number of listeners and listener hours to increase our market penetration. However, as our number of listener hours increases, the royalties we pay for content acquisition also increase. We have not in the past generated, and may not in the future generate, sufficient revenue from the sale of advertising and subscriptions to offset such royalty expenses.”
This new revenue report from the RIAA shows very clearly that the recording industry is becoming increasingly dependent on the streaming industry as a very real source of bread and butter.
RAIN Summit Chicago on tuesday was an incredible event – in my opinion the best one ever. It was very well attended by and the agenda was packed full of interesting people. I could have spent several more hours at the cocktail party connecting with them all.
The highlight of the day – no slight intended to any of our wonderful speakers – was the keynote speech given by Tim Westergren. I found him to be insightful, geniune, inclusive and generous. Tim started his speech by thanking Kurt Hanson for all that he has done for the industry by creating RAIN Summits. He offered a toast to everyone in the room who has been involved in nurturing Internet radio, and he said he is excited about the prospects not just for his company, but also for their “colleague companies” in the space. That’s how a leader talks..
Tim then went on to share a lot of inside info about Pandora with the audience. He started out by telling everyone that he believes the future of radio is Internet radio and in particular personalizable Internet radio. He talked about all the valuable data they get from interacting with their listeners and told a story about how Pandora can use that data. Like the time they packed a club in LA for an Aimee Mann performance by telling all the folks who lived within an hour radius who had clicked “thumbs up” on an Aimee Mann song that she was going to be playing nearby. To further illustrate his point, he mentioned an obscure artist from Waukegan, Illinois named Jason Michael Carroll who had a local gig coming up. Pandora can find all the listeners who clicked thumbs up for that artist and live in the area (5300), and then look for other similar sounding artists and people who liked those artists and live nearby, and tell all of them about Jason’s show, and really impact the way an artist can grow its audience.
Of course, it’s not hard to recognize the value that sort of relationship with listeners can have on advertising as well, and Westergren spent time talking about the progress that Pandora has made in generating revenue. He listed lots of major ad agencies and advertisers who are now buying ads on Pandora and talked about specific ways they have produced strong results.
It was a little disappointing to read some of the trade coverage of Tim’s speech the next morning. I noticed that a couple of publications, despite all the consensus building remarks that Tim made, simply had to portray Westergren’s speech as an attack on radio. It was not that at all. In an informed and informative speech, Westergren shared a lot of details about the success of Pandora. And in my opinion, he spoke to the audience as a fellow radio guy, confident and excited about his product and sharing info as every speaker at The Radio Show will do this week.
If there was a threat, warning or shot across the bow in that speech, it was only a perception by those in the audience who refuse to acknowledge that the definition of radio has changed and now includes Pandora, Slacker and other digital audio platforms. Clearly advertisers have begun to see it that way as well. Closing the windows, locking the doors and arguing that it’s not so will not change that reality…
Here’s the first half of the speech. The second half is also available on YouTube. I’m President of RAIN Summits and am admittedly less than impartial..
Yesterday Pandora added some levity to its lineup, by adding 10,000 clips by 700 comedians to its offerings. The clips will be available in much the same way that songs are – searchable by artist, genome coded so that listeners can indicate some preferences and then get personalized suggestions for similar artists.
Clips that I sampled were coded for featuring anecdotes, satirical observations, 2000s era comedy, jokes about personal relationships, male perspectives, sexual jokes, jokes about government, and sarcastic delivery.
Also added are new Comedy genre channels, ranging from Today’s Comedy to Golden Oldies Comedy and lots in between – 12 new comedy channels in all. Pandora Founder Tim Westergren told The New York Times that “this is a logical step under the umbrella of personalized radio.” The launch comes complete with advertising sponsors – the free comedy streams will be supported by two Unilever brands with a penchant for comedic advertising: Klondike bars and Axe male grooming products.
All of the clips appear to be sound recordings, and thus are covered by DMCA performance royalties. That means that there’s no savings to Pandora when a listener chooses a comedy clip over a song, is is sometimes the case with talk programming.
Pandora’s not the first to offer comedy channels to its listeners. Slacker Radio has had comedy available for a while and offers two comedy channels as well as custom, user created comedy channels such as Prank Call Radio. Slacker’s most popular comedy station ranks in the top ten among their more than 140 curated (or genre) stations. “As we have had great success over the past 4+ years delivering curated and personalized comedy stations to our listeners, it comes as no surprise that Pandora is making an entrance here.” according to Jonathan Sasse, SVP Marketing. Slacker is planning soon to launch hosted stations by leading comedians to further extend their comedy offerings.
In their signature way, Pandora’s blog post about the new offerings makes it all about the listeners and the artists. “We hope that the Comedy Genome Project will let people enjoy comedy they know as well as discover new talent that they love. And for comedians everywhere we hope that Pandora can provide a great big new platform for new fans. There is surely nothing more important than helping the world laugh a little more!”
I have a business card from Jessica Stoner Steel, EVP of Biz Dev at Pandora, that she gave me when we first met, sometime in the early 2000s. The card doesn’t say Pandora, it says Savage Beast Technologies, powered by the Music Genome Project. That was before the site was live, and before any of us had ever heard of Pandora. As far as I know, Jessica was one of Pandora’s very earliest employees.
Now Pandora has 275 employees, and has taken the lead position in Internet radio in the US. Of the top measured sites and stations in the US, they can claim a 50% share of listening.
The SEC filing says that they changed their name to Pandora in May 2005. It’s taken less than six years for Westergren and his team to build a brand and execute a vision, and they have done it very very well.
I remember that early conversation with Jessica Stoner (Steel). She was firm in her belief that what they were doing – it wasn’t live and she wasn’t revealing much – was revolutionary. Good for artists and listeners. Better than what anyone else was offering. In fact, her confidence seemed to me at the time to be a little cocky. But I never forgot the conversation.
I think the one thing that Westergren and his team have had from the very beginning was a vision. A dream. A conviction. That their Music Genome Project would revolutionize listening and satisfy artists and listeners. Really, the biggest thing that Pandora has had going for it from the beginning was Tim Westergren and his passion. He started traveling around the country holding town hall meetings to connect with listeners. Preach his vision. Build his brand. And he did it with genuine passion and dedication to both sides, the artists and the audience.
Pandora is an epidemic, in the very best, Tipping Point kind of way. And if the past five or six years is any indication, Pandora’s IPO will be a success.
On Pandora’s Grammy station, listeners can hear a stream of all the nominees and click to buy their favorite tracks. The channel is presented by Pandora and The Recording Academy, which is the organization that actually presents the awards. Said Tim Westergren, Founder and Chief Strategy Officer of Pandora, “Like the GRAMMY Awards, Pandora internet radio is about celebrating new musicians as well as honoring well-known ones. Our mission is to give people music they love and help musicians find a wider audience of listeners. A special-edition station, like this GRAMMY station, adds yet another way for listeners to enjoy and discover great music from a wide range of styles.”
Valentines Day offerings are popular this month as well. AccuRadio’s offering – Love Songs Radio – is a favorite with listeners and advertisers, according to station Founder Kurt Hanson, who says the seasonal channel is second only to their Christmas channels in terms of popular holiday themes.
I looked around for a specially programmed Groundhog day channel and couldn’t find one – probably too cute to have one that plays the same songs over and over…
2010 was the year that Internet radio finally became a household word – although to many that word may have been “Pandora“. Pandora’s popularity on iPhone and other smartphones really took hold this year, listening became more commonplace and many other stations benefitted as well. Apple‘s introduction of iPad created more excitement for Internet radio apps, and car manufacturers got into the game as well. Here’s a synopsis of key stories from the second half of the year…
August – In August Bridge Ratings gave us more interesting data on Internet radio’s audience, using Nielsen’s PRIZM lifestyle groupings to establish listening patterns among certain lifestyle groups. Not surprisingly, it’s the young, urban, educated and trend setting groups that are fueling adoption of Internet radio in the US.
September – September brought some interesting data on mobile music listening. According to eMarketer, 21.7 million listen to mobile music now and that number will grow to more than 52 million by 2014. comScore had the number even higher, with info showing that 234 million Americans ages 13 and older used mobile devices during the 3 month average period ending in July, 2010 and close to 34 million (14.5%) of them listened to music on them.
October – In October I wrote that Pandora had recently announced that they had 65 million registered users, a number that increased 8% in three months. In the same post I noted recent words from Pandora’s Tim Westergren who pointed out that all of Internet radio is just 3% of radio listening right now while 90% is to broadcast radio. That, says Westergren, is where Pandora’s growth will come from.
November – In November Clear Channel announced a new partnership with Toyota to put their iheartradio streaming platform in cars, a first for broadcasters moving to work with car manufacturers to create streaming radio opportunities for their platforms in ways similar to Pandora/Ford. Live365 rolled out a new platform Athena 365, targeting women, and RadioTime put their tuner on Google TV.
December – In December we learned, from Coleman Insights, that some folks just prefer to listen online – of the 17% of the population that is streaming monthly, 48% say they don’t listen to any over the air radio. The report emphasized that listeners are not shunning AM/FM radio as much as choosing a preferred platform for listening, making it critical that broadcasters view all of their distribution technologies as equally important. There are indications that that is the case – BRS Media reported that more than 75% of broadcasters who featured Christmas music were doing so online.
In addition to lots of positive news and momentum, the industry as a whole began to shape up this year. RAIN Summits, the premiere educational and networking events for the industry, hosted several excellent events including a sold out event at the Radio Show in September. More people, more professionalism, more buzz – all good things for our burgeoning business.
Thanks for reading Audio4cast this year, I wish you a profitable and healthy 2011!
One of the biggest things that Pandora has going for it is its Founder Tim Westergren, who is a smart, hip, passionate spokesperson for the leading Internet radio platform in the US. Westergren is almost as widely recognized as Pandora – he’s definitely a media darling who spends lots and lots of time speaking to the media, listeners, and musicians – making sure everyone loves his creation.
In the last few weeks Westergren has been busy – I caught videos of him interviewed at Ad Week in NYC and at the Future of Music Forum in DC. He says Pandora is driving the transition from broadcast to Internet radio. Yesterday I wrote about a new study by Vision Critical which compares Internet radio audience growth in the US, UK and Canada and comes to a similar conclusion.
Westergren says Pandora is also focused on building a great ad business for Internet radio, something that I agree with as well. Pandora has been out in front with the creation of ad opportunities, they are doing a lot of work at the agency level, and they’re on the tip of every advertiser’s tongue when Internet radio is mentioned.
Pandora recently crossed over the 65 million mark in terms of registered users, an 8% increase since July, which is absolutely phenomenal growth. But it’s a drop in the bucket to Westergren, who points out that all of Internet radio is just 3% of radio listening right now while 90% is to broadcast radio. That, says Westergren, is where Pandora’s growth will come from.
The market really opened up for Pandora when Apple introduced the iPhone and apps, which solved consumer adoption issues for them. Now Pandora is on all the major mobile devices. Next comes consumer electronics – tvs, blu-rays, tabletop – anything that has internet connectivity and audio output is fair game and Pandora wants in. Given their popularity I doubt they have to do much convincing.
So while broadcasters are working hard to get FM tuners on mobile phones, Pandora’s already done that and moved on to every single connected device. Yeah, he’s smart. And frank about his intentions. But is his competition paying attention?