Music royalties and Pandora’s box

It is one of the oldest and thorniest questions of the digital music era: How much should artists and musicians be compensated for the Internet broadcast of their songs? And who gets to decide that rate?

You might think in the nearly two decades since music first began streaming over the Internet that some kind of consensus about paying artists would have emerged. But about the only thing most Internet radio stakeholders can agree on is that the current system makes no sense: Internet radio providers pay vastly different rates than their terrestrial, cable and satellite brethren, and even sometimes each other. Also, even a single company may pay a per-song fee in some cases, and a percentage of its revenues in others. Beyond that, there is vast disagreement, with the political fault lines forming an unusual pattern.

The business stakes of this battle flared up again this week, when the New York-based indie musician Blake Morgan picked a public fight with Internet radio giant Pandora. Morgan had received a feel-good form letter from Pandora founder Tim Westergren that exhorted musicians “to change the course of the industry in a direction that will be far more inclusive and empowering for independent musicians.” In response, Morgan said the “idea that Pandora is intimately interested in the success of independent artists rings quite hollow.” Specifically, Morgan noted that his songs were played nearly 28,000 times on Pandora in the third quarter of 2012, and that he received $1.62 from the company. (As Billboard notes, that is far less than the statutory rate to which Morgan is theoretically entitled.)

In an interview, Morgan said that it was “very dishonest for Pandora” to claim to empower musicians when its royalty payments are so low, and indeed seek to lower them further. Certainly Pandora’s royalty rates are critical to the health of its business. As my Reuters colleague Daniel Indiviglio has pointed out, in 2011 Pandora’s royalties-to-revenue ratio was 54 percent; Sirius XM’s was 8 percent. In an otherwise bullish stock environment, Pandora’s stock tumbled conspicuously on Tuesday when Morgan’s correspondence with Westergren was widely aired, though it has since recovered.

A Pandora spokeswoman declined to comment specifically on Morgan’s charges, but said that the company is constantly in touch with more than a thousand musicians and seeks their active collaboration in setting rates.

Clear Channel’s Pittman: iHeartRadio app is not about Pandora, kinda

When Pandora shares took a dive last week several people pointed out that its dip came soon after the number one U.S. radio company Clear Channel Inc launched a customized radio application announced with a press release which didn’t shy away from drawing comparisons with Pandora.

Of course those comparisons essentially said “look our service is waaay better  than Pandora” and Clear Channel’s chairman of media and entertainment platforms Bob Pittman, couldn’t help but damn Pandora with faint praise in our interview.

Here are highlights of our chat with Pittman, a well -known AOL and MTV alum. (By the way, Pandora shares were back up 5 percent on Tuesday morning to $10.38).

from Entrepreneurial:

Note to entrepreneurs: Your idea is not special

-- Brad Feld is a managing director at the Boulder, Colorado-based venture capital firm Foundry Group. He also co-founded TechStars and writes the popular blog, Feld Thoughts. The views expressed are his own. --

Every day I get numerous emails from software and Internet entrepreneurs describing their newest ideas.

Often these entrepreneurs think their idea is brand new – that no one has ever thought of it before. Other times they ask me to sign a non-disclosure agreement to protect their idea. Occasionally the emails mysteriously allude to the idea without really saying what it is.

TodayInMusic: Pandora adds Chernin and ex-Netflix CFO to board

Pandora_Tim Westergren11Pandora, the popular Internet radio service, has expanded its board membership with two heavyweights of the media world: former News Corp no.2 Peter Chernin and former Netflix CFO Barry McCarthy.

The news will naturally stoke speculation that an IPO is indeed round the corner. Reuters reported last month that the company has met with bankers to discuss a $100 million public offering.

Chernin, wh0 left News Corp in early 2009, now runs his own business in Hollywood called The Chernin Group and Chernin Entertainment investing in media, entertainment and technology businesses.

Today In Music: Q&A with Tim Westergren founder of Pandora

Q&A: Tim Westergren, Founder Pandora

Pandora_Tim Westergren11Pandora is the leading Internet radio service in the United States with more than 75 million registered listeners  claiming more than 50 percent of that market using its free service. It is one of the top five most download apps across smartphones and mobile platforms like iPhone, Android and BlackBerry according to Nielsen research with more than 50 million total mobile downloads.

It was launched on the Web in 2005 by Westergren and to date has raised more than $56.3 million through five rounds of funding according to TechCrunchwith backing from names like Greylock Partners, Hearst Interactive Media and Allen & Co.

Earlier this month sources told Reuters that Pandora has opened early conversations with bankers about a possible $100 million IPO . The company has declined to comment on any details of the potential offering.

Newly funded Echo Nest tells music industry: “It’s the data, stupid”

Echo Nest Parakeet

Of the many ways the traditional music industry has struggled in the fast evolving digital music world has been understanding who is listening, why they’re listening , when and where they’re listening and find ways to build music-based products and services around that — especially since not as many people are buying music as they used to.

This is where The Echo Nest comes in. A start-up based in Somerville, Massachusetts is a self-described music intelligence company that powers music applications and services for developers and media companies based on data that it is automatically collates from millions of songs and music articles around the Web.

Chief Executive Jim Lucchese, a former music lawyer, compares one element of Echo Nest’s offering to the ever popular Pandora whose Music Genome Project indexed over 800,000 songs in a major labor of love which involved hundreds of musicians/analysts. He says Echo Nest’s technology is able to index millions of songs on any number of criteria in seconds.

CES: Ford’s Mulally digs hands-free, in-car Pink Floyd

Here’s Ford CEO Alan Mulally getting excited about the new MyFord Touch in-car tech system, launched today at CES.

First attempt cut short by lack of Internet access. He’s not the first CEO bedeviled by tech problems at the show, after a power cut delayed Microsoft CEO Steve Ballmer’s keynote on Wednesday evening.

Second take shows successful launch of hands-free Pandora Internet radio. Pretty cool, despite choice of dinosaur-rock station.

Whither Windows 7 and its (expected) wake?

A lot may be riding on the release of Microsoft’s newest operating system, Windows 7, which is due in October, not the least of which is an expected rush of advertising to support everything from the software itself, to the computers it will run on to the rival computers it will not run on.

This surge of business is seen coming just as the holiday shopping session gets under way and could help spark the economic turnaround that some suggest will come later this year.

Or maybe not.

According to a survey by ScriptLogic, six in 10 companies plan to skip buying Windows 7. Some will pass on the added cost of the upgrade, while others are concerned about compatibility with existing applications.

Sirius unveils iPhone App: reviews not so good (updated)

Sirius XM Radio has launched its long-awaited App for the iPhone to mixed reviews. That’s not surprising, really, since the legion of Sirius subscribers has never been sheepish about the pay radio service.

Many users like it, so they can get unique programming in a slick iPhone App. Now they can take Martha Stewart Radio, Road Dog Trucking and the Praise Channel with them anywhere. But you can’t listen to exclusive stuff like Howard Stern’s programming, or Major League Baseball games or the Nascar channel. Ouch.

It’s true that only a handful of channels are excluded (for rights reasons) versus the 120 channels one can listen to. But many Sirius XM subscribers are drawn to the service primarily for Stern, Baseball and the NFL, and they are not pleased. Of 421 user reviews on the iTunes App Store, 261 rate it 1 (out-of-5) stars, and its average is 2 stars. By contrast, online radio app Pandora scores an average 3.5 stars (from a much larger survey sample).