Another reason why Pandora is not radio: Opinion from Peter Saxon

Pandora, the world’s biggest online music server, is raking in the big bucks, $US125 million just last quarter. But before it makes a cent in profit it must pay out a crippling 50% of its earnings to the record companies and the musicians that provide the music that drives the revenue.

Having so far failed to convince legislators to intervene and cut those royalties to something akin to what radio pays, it is now lobbying individual artists to sign directly with them and agree to lower rates.

Now the founding fathers of legendary rock band Pink Floyd: Roger Waters, David Gilmour, and Nick Mason, who presumably don’t need the money (and have yet to make a Coles ad), have come out with a remarkable open letter imploring their fellow artists not to sign with Pandora, calling the offer a ripoff.

In the full letter published in USA Today the band said, “Nearly 90% of the artists who get a check for digital play receive less than $5,000 a year. They cannot afford the 85% pay cut Pandora asked Congress to impose on the music community.”

It’s not that traditional radio completely escapes Pink Floyd’s ire. They state: “Artists would gladly work with Pandora to end AM/FM’s radio exemption from paying any musician royalties – a loophole that hurts artists and digital radio alike.”

Even in Australia where radio does pay musicians royalties for airplay, the rate is miniscule compared to the staggering 50% of revenue forked out by Pandora.

So why is it that Pink Floyd and many other artists are so incensed by Pandora and want even more than the 50% that they’re providing yet would be happy with much less from radio?

Firstly, let’s call a spade a spade and call a “cloud based music server” anything you like, but don’t call it radio, because it ain’t.

As I have argued on several previous occasions until these music servers start hiring on air talent and compete with news, traffic and local content they are merely a technological improvement on an iPod.

That’s not to say that they don’t represent a clear and present danger for radio. They do, chiefly because no one can buy advertising on my iPod, but they can buy ads on Pandora.

The Pink Floyd letter highlights another huge difference between radio and cloud based music servers. Writing in the Financial Review in March 2012, “Can cloud save the music industry?” Lachlan Colquhoun argues, “Listeners who want to tailor their listening to their own tastes may find the streaming offerings from the online providers more attractive than traditional commercial radio, with its advertising and play-lists dictated by music programmers.”

Here’s the difference. Through those formats and playlists Radio sells records. Pandora, and the like, don’t.

They give you access to more songs than you could ever buy at a fraction of their value – as Pink Floyd argues, about 15% of their value. Why would you ever buy an album again?

Far from The Cloud being the saviour of the music industry, it could be it’s killer.

Peter Saxon