Aerosmith lead singer Stephen Tyler has been another vocal critic.”If the laws continue going the way they are, [songwriters] will never be paid fairly for [their] own participation,” National Journal reported him as saying. Another songwriter claimed he had been paid just $16.89 after more than one million streams of a song.

Pandora has pointed out that it pays out a lot more out in royalties to record companies and publishers than artists and songwriters actually receive. But artist anger remains focused on Pandora rather than the labels and publishing companies, for now at least.

In coming weeks, Pandora is expected to launch a new platform that has been compared to Google Analytics or Chartbeat, and is designed to provide artists with greater transparency about how often, where and when their music being played. Meanwhile, a rate-setting case with BMI is underway, and just last week, record companies filed a fresh suit against the company over royalties for music made before 1972.

It is difficult to avoid the impression that the music business has it in for Pandora because it is an outsider. Other streaming music platforms are either owned by radio stations (iHeart Radio is owned by ClearChannel, Cumulus Media has a stake in Rdio) or the record labels themselves (Spotify, reportedly).

Yet of all the internet streaming products out there, Pandora’s product, built on the Music Genome Project, is the one that consumers have warmed to the most so far. It has about three times as many active listeners as Spotify does for its free, ad supported product.

Pandora already pays out more than half of its revenue in royalties. It’s just that most of this money (49% of its revenue) goes to record companies and recording artists, not publishers and songwriters. It’s almost the exact opposite situation to the paradigm that exists in terrestrial radio—where publishers get 1.7% of revenues and record companies get nothing. One argument is that the royalty situation should be sorted out between the publishing and recording companies, which, as we discussed earlier, are often divisions of the same parent corporations.

“We are disappointed to see a handful of powerful music companies fixate on a single innovator that already pays more than any other form of radio,” a Pandora spokesman says in an email. “Why single out Pandora when terrestrial broadcasters—with several times the combined revenue of Pandora—have never been required to pay performing artists a penny and offer songwriters a lower percentage of revenue?”

In any case, even without a rate increase, the more revenue Pandora makes (and through a push into into targeted, in-car advertising, the company is taking further steps to boost revenue), the more money songwriters and artists will receive in absolute terms.

Yet, while the company is growing fast, it is still losing money, and further increases to its royalty cost base will hardly help. The music industry could be trying to kill the goose that is about to finally lay it some golden eggs, as Pandora’s revenue and royalty payments rise with the surge in consumer streaming of music.

“The fact that 15, 20 years into the existence of digital music services, there has not been a single streaming service that has turned a profit on a cumulative or even an annual basis, the vast majority have gone out of businesses,” says Fakler. “Could it be that every single company was mismanaged, or couldn’t find a business model? The only explanation that’s rational is that the rates are too high.”


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