Pandora: We're Helping Artists Make Millions & We'd Like To Keep Doing That

from the interesting-to-see dept

For all the talk of new music platforms not paying artists enough, we keep hearing counter stories. The latest is that Pandora has revealed that two artists -- Drake and Lil' Wayne -- will make somewhere close to $3 million in royalty payments from Pandora this year. Lots of other artists make many thousands of dollars as well:
Have you heard of Donnie McClurkin, French Montana or Grupo Bryndis? If you haven't you're not alone. They are artists whose sales ranks on Amazon are 4,752, 17,000 and 183,187, respectively. These are all working artists who live well outside the mainstream - no steady rotation on broadcast radio, no high profile opening slots on major tours, no front page placement in online retail. What they also have in common is a steady income from Pandora. In the next twelve months Pandora is on track to pay performance fees of $100,228, $138,567 and $114,192, respectively, for the music we play to their large and fast-growing audiences on Pandora.

And that's just the tip of the iceberg. For over two thousand artists Pandora will pay over $10,000 dollars each over the next 12 months (including one of my favorites, the late jazz pianist Oscar Peterson), and for more than 800 we'll pay over $50,000, more than the income of the average American household. For top earners like Coldplay, Adele, Wiz Khalifa, Jason Aldean and others Pandora is already paying over $1 million each. Drake and Lill Wayne are fast approaching a $3 million annual rate each.

Of course, while all of this is happening, Pandora is not yet profitable, and may never be profitable -- as it is required, under current webcasting rates, to pay about 50% of its revenue out as royalties (while terrestrial radio and satellite radio get to pay much, much less). As Tim Westergren has pointed out, because of the crazy rates, plenty of other webcasting operations have just left the business entirely -- meaning that there just aren't that many players in this space, because it just isn't profitable for the companies, even as they're developing important new revenue streams for artists.

I'll have more on this later, but it often seems that legacy players really have no concept of "the golden goose." They assume that any tech company, who is moderately successful in getting users, simply should be bled dry, paying out just about everything to artists, with nothing left for the companies themselves. They think that the music is the entire value, and the service provided is not very important. And yet, without that service, none of that money would come in at all. At some point, the legacy guys are going to have to realize that they're better off having a healthy ecosystem of services, rather than squeezing the absolute highest rates out of these companies, in a way where they can't survive.

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  1. identicon
    Anonymous Coward, 10 Oct 2012 @ 7:23pm

    Re: Paying out 50% of revenues should not equal no profits

    "However, I really have to wonder why Pandora is unable to earn a profit."

    That's the killer here. Mike goes on and on about bandwidth being so cheap, and all that, and yet when it comes time to explain why a company doesn't make money, suddenly bandwidth is a big expense.

    The business model of Pandora should be a huge money spinner. Any business where the basic costs of operations are fixed as a percentage of advertising means they should be profitable if they scale up. Pandora's real problem appears to be not enough clients, not enough advertising to cover it's other costs with a margin after materials of 50%.

    I am guessing that Pandora has discovered that, in a world full of pirates getting content for nothing, not enough consumers are willing to listen to ads to get their service.

    The other thing is that Pandora isn't available outside of the US, but with a 50% payout rate, they should have no problem signing new licensing agreements for the rest of the world. My guess is the real issue of profitability of Pandora has absolutely nothing to do with the licensing agreements, and more to do with the costs of operating the business.

    Licensing is a handy scapegoat that people like Mike can latch onto, hiding the real issues of the business.

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