Pandora Buys FM Radio Station to Undercut Songwriters: ASCAP objection denied

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  • #10388
    Andy Brown
    Participant

    The FCC has ruled in favor in a two year old case whereby Pandora Media sought approval to buy an FM radio station in South Dakota. Pandora sought this radio station so that they could further reduce their royalty payments to artists and composers.

    Internet radio and traditional AM/FM radio use music and generate revenue in very different ways.
    Over 70 million people listen to Pandora every month. In contrast, KXMZ has an average listenership of 18,000.
    The Radio Music Licensing Committee (RMLC) license was designed for businesses that earn more than 95% of revenue from traditional AM/FM radio. That’s a far cry from Pandora’s business model, which is wall-to-wall, user-influenced online music.
    By 10am every morning, Pandora has already performed 200 million songs, as compared to the hundreds of songs played by the average radio station in an entire day.
    Even with the purchase of KXMZ, Pandora will earn virtually all its revenue from the Internet, so the Internet licensing rate should apply.

    However, this will not be the case as the objection to the sale (for other reasons) has failed to succeed in FCC court. That reason was that Pandora can not prove no more than 25% of its stock is owned by foreign interests.

    This is a tough issue to parse. The foreign ownership rules have been waived before, but that isn’t the real issue. The real issue is that Pandora is executing an end around to reduce the amount of money it has to pay in royalties, and that is only cheating artists and composers. Pandora says this will help music creators and listeners, but the facts tell a much different story.

    http://www.ascap.com/playback/2013/06/action/pandora-buys-fm-radio-station-in-a-bid-to-undercut-songwriters.aspx

    The FCC did agree with the royalties aspect of ASCAP’s complaint, but said it wasn’t their issue to resolve:

    We agree with Pandora that the music copyright licensing dispute raised in the Opposition is more appropriately resolved through Congress, the courts, and other government agencies. Furthermore, we agree that matters concerning the collective licensing regime are unrelated to potential unacceptable foreign influence over U.S. broadcast stations, which is the sole focus of Section 310(b)(4) as it applies to broadcast licenses. The alleged harms to the performing rights system arise from Pandora’s proposed purchase of a radio station, not from the level of Pandora’s foreign ownership, and would exist whether or not Pandora was able to demonstrate compliance with Section 310(b)(4). Thus, ASCAP’s broader public interest argument is inapt in the context of this Declaratory Ruling, which exclusively concerns our statutory obligations under Section 310(b).

    http://transition.fcc.gov/Daily_Releases/Daily_Business/2015/db0504/FCC-15-52A1.pdf

    Normally I’d post something like this in the FCC thread, but this is a major blow to artists and composers, according to quite a few sources whose comments below are from the first link:

    WHAT PEOPLE ARE SAYING:
    It’s telling that the deal was announced in an editorial written by Christopher Harrison, Pandora’s assistant general counsel, in the Hill, a Washington newspaper covering legislative minutiae. Pandora’s future relies more on laws and courts than on its ability to successfully run KXMZ, Hits 102.7.
    Businessweek: Pandora Buys a Radio Station, Just to Make a Point About Royalties, June 12, 2013

    Just in case you didn’t quite get it before, Pandora has now demonstrated unequivocally that they loathe songwriters so much that they’d literally do anything to screw them. Including antics like buying an FM radio station.
    Music Tech Policy by Chris Castle:Tim Westergren’s Mask Is Slipping: Pandora’s Scorched Earth Attack on Songwriters, June 11, 2013

    There may be plenty of music-lovers in the nation’s 46th largest state, but Pandora’s purchase of a South Dakota top 40 music station last week certainly wasn’t about them.
    Upstart Business Journal: Pandora’s bold plunge into mainstream radio, and a lesson for startups, June 12, 2013

    The company is also trying to convince everyone that this about “the community” and not just pleasing their money-hungry investors… Despite its stated intentions to make its service better and please “the community,” it also seems like Pandora bought a radio station in South Dakota as a big publicity stunt in an attempt to highlight its plight with the record industry which is still stubbornly trying to make money for its artists.
    Gizmodo: Why Pandora Just Bought an FM Radio Station in South Dakota, June 12, 2013

    Its first foray into traditional radio broadcasting, the move has little to do with strategic shift and everything to do with royalty costs… Pandora’s costs savings will be small. The preferential royalty rates are expected to snag savings worth less than 1 percent of its revenue versus the rates it is currently paying.
    CNET: Pandora to buy radio station to piggyback onto cheaper costs, June 11, 2013

    Members like me depend on ASCAP to negotiate fair deals on our behalf, so we can earn a living as more listeners discover and enjoy our music across a wide variety of platforms, including Internet radio… I like streaming music online as much as the next guy. And I certainly appreciate the opportunities it creates for me as an artist to reach new listeners. But Pandora is misleading readers by claiming to be on the side of artists, when its recent actions firmly prove otherwise. Shame on us if we let them continue the charade.
    The Hill: Pandora is stiffing artists by songwriter Josh Kear, June 13, 2013

    “This is yet another sad step in Pandora’s war against songwriters,” National Music Publishers Association president David Israelite told Digital Music News. “While other digital music partners choose to enter into voluntary licensing deals, Pandora chooses to try to enrich itself through a strategy of suing creators and gimmicks. The only positive development from this is that Pandora has removed any shred of credibility it had with creators and now can be seen for what it is — a company with no interest in treating songwriters fairly.” Digital Music News: Songwriters Respond: “This Is Another Sad Step in Pandora’s War Against Us…”, June 12, 2013

    #10460
    Chris_Taylor
    Participant

    Screw the folks who make the music, who help make the money for Pandora. The audacity is they’re doing it right in front of us and we seem to have little hope to stop them.

    #10514
    missing_kskd
    Participant

    Interesting…

    What about this?

    Beyond helping net Pandora lower streaming royalty rates, Grimaldi says buying KXMZ does make sense for the company as a testing ground for tweaks to its service. “Pandora excels in personalizing music discovery, and terrestrial radio is experienced in integrating with a local community,” he points out. Grimaldi says the company will be able to use data from the 42,000 Rapid City users of Pandora to fine-tune KXMZ’s programming.

    (from the Inside Radio piece)

    Pandora the service has some 30 percent of the listeners there, who use the service some of the time. That station has what share of listeners, and what share of regulars?

    That’s a pretty big chunk of very highly quantifiable data they have to work with there. And they can program KXMZ and continue to use that data to improve that programming.

    Then I look at iHeart. Does it’s streaming pay the higher rates, or not?

    I can get lots of stuff on either service, and both stream on the net, both allow some influence on the tunes played, etc…

    One is basically extending radio stations to new listeners, and the other is extending a body of listeners to radio stations…or could be. Who knows. The other is attempting to be radio though, with aggressive moves to solidify in car options.

    A quick divide of Pandora revenue gets us to $11 and some change per regular listener. That’s not a lot of money, and we know some listeners subscribe, but I don’t know what that percentage really is. I also don’t know what margin Pandora is running on. Are they profitable, or not? The quick glance I took indicated it is, but not by much.

    Pandora needs subscribers. Most revenue is AD driven, and they have scale, but rates / AD are quite high. Radio is AD driven, pays lower rates, big entities also have scale.

    I find that dynamic very interesting. My daughter just bought a car, and Pandora is right there, but it uses phone data. She’s debating between a better mobile plan, buying Sat radio, and or using HD Radio more.

    (and she was completely unaware of that even existing, despite the fact that her car came with a very nice unit, to which I promptly showed her the HD channels she would enjoy… Despite how I feel about HD, it’s a good deal for people, and more –way more messaging and promotion is needed here. She’s right in the radio target and had no idea at all.)

    Maybe everybody needs to pay higher rates and feed the artists, yes?

    It’s interesting to note the differences between the massive scale of somebody like IHeart Media and Pandora. One has a lot of stations, and lower rates, but higher cost of operation. The other has a lot of listeners, but higher rates, and I’m not sure about operation costs.

    Then there is this:

    If it’s too expensive, or too AD laden, people will just pirate. We’ve got that data, and it’s not changed much.

    Or, people will just buy tracks and listen to streaming / broadcast media much less. That’s what I currently do. And I don’t use Pandora at all.

    Pandora stands to win with more subscribers, and maybe with that some more control / choice options to offer people? Or maybe it’s just enough to have the service work across the various modes people want to have it work on.

    Radio expanding into streaming is a mixed bag. Do the lower rates apply to streams, or not?

    Overall, there are a TON of ways to get music. Choice is off the charts now, leaving people to center in on what they want and perhaps not buy much at all. For sure, that dilutes the value of plays and buys. Lots of supply there, and demand is mixed across devices, modes, etc…

    This isn’t cut ‘n dried people.

    Finally, does anybody have operating margins for the big industry fee collectors? Just how thick are they running and I’m asking with the idea of artists actually getting more.

    #10527
    Alfredo_T
    Participant

    I’ll start off by mentioning that if I want commercial-free music, I have the following options:

    • KXPD 1040 AM
    • KBPS 1450 AM
    • KMHD 89.1 FM
    • KLCC 89.7 FM
    • KQAC 89.9 FM
    • KSLC 90.3 FM
    • KBOO 90.7 FM
    • KWAX 91.1 FM
    • KRVM 91.9 FM
    • KISN-LP 95.1 FM
    • KQRZ-LP 100.7 FM
    • K296FT 107.1 FM (X-Ray FM)

    Perhaps, the Firedrake Chinese radio jammer on shortwave can get honorable mention, if that is still on the air.

    On top of that, there are all of the Air-1, K-Love, and Way-FM translators, as well as Catholic Radio KBVM. I didn’t put those on the list because I do not spend much time listening to them.

    I do not have to use data plan minutes or pay subscription fees to listen to any of the above options.

    I am aware that people are in love with the streaming music services because of the level of control that they give over what one hears. I was recently at a party where several people were raving about how much they love Pandora and Spotify, and that they had paid for subscriptions so that they could hear music without commercial interruptions. One person was talking about his affinity for film theme music and how he had set up a playlist on Pandora with all his favorite movie themes (when I was in college radio, I quickly learned that playing TV and movie themes on the air quickly drives most of the listeners away).

    Interestingly, in the discussion at the party, I mentioned that airplay of music on terrestrial radio stations provides royalties for the composers but not for the performers. I then asked the open ended question, what happens music is played by Pandora and similar services; how does the royalty payment scheme work? Nobody seemed to know (or possibly care).

    #10531
    Andy Brown
    Participant

    Alfredo, under the law, 45 percent of performance royalties are paid directly to the featured artists on a recording, and 5 percent are paid to a fund for non-featured artists, typically session musicians and background singers. The other 50 percent of the performance royalties are paid to the owner of the sound recording (i.e., the owner of the “master”), which can be a record label or an artist who owns their own masters.

    http://www.soundexchange.com/artist-copyright-owner/digital-royalties/

    Pandora should not be entitled to a reduced rate just because they own one radio station. I hope they get their asses sued big time. When 99% of their usage is streaming, granting them a discount because they bought one radio license is negligible. This isn’t about what Pandora’s work flow brings to radio or what radio’s work flow brings to Pandora nor is it about how streaming services operate. It’s about gaming the system to pay lower rates and cheating creative content producers and artists. Period.

    #10559
    semoochie
    Participant

    Alfredo, you can add to the list “Tailgate Country” 103.7, since they specifically mention that they air no commercials.

    #10565
    missing_kskd
    Participant

    I didn’t see where Pandora actually is seeking lower rates, or getting them for their entire streaming business.

    #10672
    Alfredo_T
    Participant

    I’ll add Tailgate Country 103.7 (K279BO). I did not realize that they are still commercial-free.

    Last night, I also happened across commercial-free musical programming on Radio New Zealand International, 9.700 MHz. I did not realize until then that Radio New Zealand is still had a North American service on shortwave.

    #10675
    Andy Brown
    Participant

    “I didn’t see where Pandora actually is seeking lower rates, or getting them for their entire streaming business.”

    They said it themselves back when they applied for the transfer of license.

    http://www.bloomberg.com/bw/articles/2013-06-12/to-make-a-point-about-royalties-pandora-buys-a-radio-station

    #10682
    semoochie
    Participant

    I’m sure that the only reason Tailgate Country is there in the first place is to take shares from the other two country stations and boost IHeart’s overall position. The best way to do that is to present themselves as “commercial free”.

    #10694
    missing_kskd
    Participant

    I see it too, thanks.

    #11210
    Andy Brown
    Participant

    Pandora is now cleared to become a broadcast station owner.

    The Media Bureau has approved Pandora’s purchase of KXMZ(FM), Box Elder, S.D., for $600,000 from Connoisseur Media and denied an objection from ASCAP.

    The approval of the station sale was expected as the commission recently approved a waiver so the parent company of the Internet audio firm could exceed the 25% foreign media ownership benchmark. FCC Chairman Tom Wheeler had indicated at the NAB Show in April that he’s in favor of loosening foreign ownership limits to spur foreign investment in U.S. broadcast companies and vice-versa.

    The bureau subsequently approved Pandora’s petition in May with conditions, like submitting information on how it will certify its foreign ownership.

    Pandora said when it announced the station purchase in 2013 it wanted to become a broadcast station owner in order to reduce its streaming royalty rates. ASCAP said that meant Pandora wasn’t “sincere” about becoming a broadcaster.

    ASCAP and Pandora are involved in litigation over performance royalties and ASCAP objected to the station purchase. In May, ASCAP told the agency the information Pandora supplied only confirms the deal is in the public interest, but doesn’t fulfill the stronger proof needed for foreign ownership certification.

    Connoisseur and Pandora had a clause written into the sales agreement that allowed either of them to walk away from the deal by June 10 of this year; ASCAP called that a “red herring” because neither was likely to cancel the transaction at this point, especially because of the local market agreement by which Pandora has been operating KXMZ since 2013.

    Pandora argued that it agrees with the commission’s arguments in favor of granting the foreign ownership waiver, that the Internet audio firm’s current ownership situation serves the public interest and “does not raise immediate concerns regarding foreign interest or control.”

    In the decision signed by Media Bureau Chief Peter Doyle, he wrote that ASCAP doesn’t fit into the traditional definition of an aggrieved broadcaster who can fight a transaction since it’s not a broadcaster, a regular listener or even a listener within the station’s contour. ASCAP submitted a filing by someone who claimed to be a station listener, however both Pandora and the FCC said it was illegible and the filing didn’t state the person lived in the market nor if the person was a regular KXMZ listener.

    The upshot? ASCAP hadn’t proved its case and the bureau denied its objection, allowing the Pandora-Connoisseur transaction to close.

    http://www.radioworld.com/article/fcc-oks-pandora-station-purchase/276162#sthash.2KY4taA9.dpuf

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