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Glenn Peoples: Pandora Has Its Mind on Your Money and Your Money on Its Mind

glenn peoples columnist logo 300x300Glenn Peoples is Head of Music Insights and Analytics for Pandora. This guest column was originally published on Medium.


Radio is widely considered a friend of songwriters and publishers. Streaming services’ royalties have been criticized from private conversations to testimony on Capitol Hill. But when broken down at the most granular level, one person listening to one song, Pandora’s current publishing royalty is 67 percent larger than radio’s publishing royalty per listen.

According to my calculations this year Pandora will pay songwriters and publishers about 0.0351 cents per spin (or listen), or $351 per million spins. That may seem small, but I estimate radio will pay songwriters and publishers about 0.0021, or $210 per million spins.

It’s easy to understand why a person might believe radio offers better royalties. Radio simply has more spins to more people. Radio is the classic “one-to-many” medium. It has a massive audience (93 percent of the U.S. each week) and gets huge listening time (15.1 hours per week, on average). As a result, a popular song can be heard repeatedly in markets both big and small. Consider that Mark Ronson’s “Uptown Funk” had a U.S. radio audience — listens, in other words — of 4.8 billion in 2015, according to Nielsen Music. And radio broadcasts have been made since the early 20th century whereas Pandora is just 10 years old.

Internet radio is a “one-to-one” medium. Even though Pandora has about 80 million monthly listeners, its royalties seem small because each royalty applies to a spin to a single listener. Like other streaming services, Pandora pays two types of royalties. One is related to a sound recording and benefits record labels and performing artists. The other royalty is related to that sound recording’s underlying musical work — called “publishing royalties” here — and is paid to songwriters and music publishers. And because a royalty is generated by a single stream, both rates are small on an individual level.

But here’s the rub: when comparing the royalties earned when a single person hears a single song, radio also pays a fraction of a cent to publishers and songwriters. Comparing these fractions of cents is the best way to compare radio royalties to Internet radio royalties. After all, the audience of a one-to-many platform (radio) cannot be given a side-by-side comparison with a one-to-one platform (Internet radio). The radio audience needs to be broken down into individual listens.

Calculating Pandora’s publishing royalty is easy. Estimating a per-song-listen royalty for radio isn’t straightforward, however. But a good estimate for radio can be calculated with by digging for publicly available data and making fair, logical assumptions. And I should be clear that the radio royalty derived here is just an estimate.

Pandora’s per-spin publishing royalty is currently 0.0351 cents. It’s calculated by taking 20 percent of 0.176 cents, the expected blended rate for sound recordings in 2016 (the value is found in a December 16, 2015 Pandora press release). This royalty, 0.176, deserves some explanation. The royalty for a stream of a sound recording is 0.17 cents for ad-supported spins and 0.22 cents for subscription spins. This year’s spins are expected to have a ratio of ad-supported spins to subscription spins of 91 percent to 9 percent (imputed from the blended rate). Weighting the expected ad-supported and subscription streams results in a blended royalty of 0.176 cents. Next, direct deals negotiated last year give publishers 20 percent of the sound recording rates. Twenty percent of 0.176 cents is 0.0351 cents, or $351 per 1 million streams.

Radio’s per-stream royalty is roughly 0.0021 cents per song listen or $210 per million listens, according to my calculations. [Note: This covers both broadcast and satellite radio.] This is nearly the same as the value, 0.00219 cents or $219 per million song listens, calculated by David Touve in his Rockonomics blog last year. My value is based the latest available data for 2015 while Touve used data for 2014. But our calculations arrived at nearly the same values because the inputs — namely radio royalties and listenership — didn’t change much from year to year.
The roles reversed in 2016. This 2015 rate is a 103-percentage point swing from the 67-percent advantage of today’s Pandora’s royalty .Before Pandora had direct deals with music publishers, its publishing royalties were about ten percent of sound recording royalties (compared to 20 percent today). This royalty, 0.0134 cents per spin, put Pandora’s 2015 per-spin royalty at 36 percent below radio’s per-listen royalty.

The calculations for the radio royalty requires a range of inputs (see below). Radio stations don’t pay royalties by the song. And we don’t know exactly how many songs radio listeners hear in a year. So the best way to calculate the radio royalty is to start with total domestic radio royalties and divide by the estimated number of listens. I’ve used only publicly available numbers and estimates based on publicly available data (such as calculating the annual radio royalties of BMI and, guided by Touve’s work, SESAC).

The total number of spins is just an estimate, and changing an input can push the radio royalty up or down. For example, estimating how many people listened to how all songs played requires knowing how many listened in the first place. I used Nielsen’s weekly radio coverage of 93 percent of people 12 and over (also used by Mr. Touve). But the percent of people who listen to radio over 52 weeks (since we’re talking annual values here) is probably higher than 93 percent (just as the number of weekly listeners is higher than daily listeners….not everybody tunes in every day). But the lower 93 percent figure actually benefits radio — a higher percentage would mean more people had listened to more songs (and a larger denominator as a result). In another example, changing the average song length to 4 minutes from 3.5 minutes would raise the radio royalty 14 percent (to 0.0024 cents from 0.0021 cents) because the number of listens (the denominator in the equation) would fall.

It’s worth mentioning that Pandora’s direct deal with indie rights group Merlin, covering only sound recordings, pays a lower rate for some spins. In a 2014 deal that extends to 2016, Pandora pays a lower royalty for steered spins (incremental spins) of Merlin label’s recordings. If we assume there are steered songs, we can assume a lower rate for those steered sound recordings and therefore a lower rate for publishing (since the publishing rate is now tied to the sound recording rate). This would decrease Pandora’s per-spin rate a small amount.

Components for 2016 Radio Royalties Calculations

  • ASCAP: $173 million domestic radio royalties, from 2015 annual report.
  • BMI: $171 million domestic radio royalties, estimated by applying ASCAP’s ratio of radio royalties/total royalties to BMI total royalties found in its 2015 annual report. BMI does not disclosure royalties of business segments.
  • SESAC: $31 million domestic radio royalties, estimate based on 2015 Moody’s report.
  • Total listens: 1.64 trillion
  • People in U.S. age 12+: 245,871,900, U.S. Census
  • Percent that listen weekly: 93 percent, Nielsen Music
  • Weekly listening hours: 15.12, Edison Research (note: this surveyed people age 13 and over while Nielsen’s numbers cover people age 12 and over)
  • Music as share of radio listening: 83.2%, Nielsen Music
  • Minutes of music per hour: 48, Insider Radio Survey
  • Songs per hour: 12.0, assuming 3.5-minute average song length

Components of Pandora Royalty Calculations

  • 2015 total royalties: Pandora 2015 10-K filing
  • 2015 publishing royalties: Pandora public disclosure
  • Ratio of ad-supported to subscription spins in 2015 and 2016 (imputed): Pandora December 16, 2015 press release
  • 2016 sound recording royalty rates: Copyright Royalty Board’s Webcasting IV decision
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Brad Hill

21 Comments

  1. He’s changing the subject, pointing at someone else, when the issue is strictly about what Pandora pays songwriters vs. what Pandora pays labels and artists. Everyone knows that Pandora pays 50% of its revenues to labels and artists. Songwriters get a fraction of that. No matter how Peeples wants to redefine the discussion, or change the focus, that’s the central fact. Songwriters get paid less than everyone else. That’s not fair.

    • Interesting. I had always heard the opposite. That it’s better to be a singer/songwriter than just a singer because singer/songwriters get paid better.

    • You’re right that the songwriter side receives less than the label side. That has been argued persuasively in congressional testimony time and again. But I don’t know why you say “the issue is strictly” that. It is a different issue. Glenn Peoples is writing about payments to songwriters from Pandora vs. payments from radio. He’s not redefining the discussion, just because you wish he was talking about something else! In fact, he is exactly hitting the point that you and I discussed in a different comment thread.

      • “He’s not redefining the discussion, just because you wish he was talking about something else!”
        He can talk about anything he wants. But his metrics are not the way songs are counted for the purposes of royalties. He can try and tell me his numbers make Pandora look better, but they’re just his numbers. That’s why I call it “redefining.” It’s a sales pitch from strictly Pandora’s point of view. Maybe you can show me an unbiased, respected authority on royalties who agrees with his metrics.

        • Glad to show you a respected authority on this subject, one of the most respected in the country — attorney David Oxenford: http://www.broadcastlawblog.com/2015/04/articles/how-misunderstandings-about-big-numbers-distort-the-debate-over-songwriter-digital-music-royalties-as-the-doj-readies-its-recommendations-for-reform-of-the-ascap-and-bmi-consent-decrees/. Here is one brief excerpt: “The misunderstanding underlying this debate is based on the nature of Internet radio and similar digital music services. These are fundamentally one-to-one services, rather than one-to-many services like over-the-air radio.” He goes into great detail about how that causes misperception. But here’s what I don’t understand. Why don’t you WANT to use this measurement? If you care about royalties to musicians, why aren’t you advocating for measurement of performances, instead of measurement of spins?

          • Thanks for that link. Very much agree with that attorney that it’s like trying to compare apples and oranges.

          • ” Why don’t you WANT to use this measurement?”

            I’m not the one computing royalty payments. My question is: If this is comparing apples and oranges, then why is Glenn Peeples writing this article comparing Pandora to FM? As he himself notes, FM doesn’t pay royalties by the song. The PROs negotiate a royalty based on revenues, not spins. Since FM revenues are greater than Pandora’s, FM pays more money. All that matters is the bottom line. But it gets back to the question about airplay equaling a performance, and that’s an argument going back 80 years.

          • I think Glenn wrote the article to explain that Pandora offers better financial valuation to songwriters than FM, because performance-based payments are more honest. Pandora is always trying to elevate its reputation with musicians. Glenn’s argument does so with undeniable logic, even if it doesn’t correspond with royalty calculations. To put it another way — there are two bottom lines. One is the amount of money, as you say. The other is amount of money per performance. Pandora wants musicians to be more aware of the different delivery platforms.

          • “The other is amount of money per performance.”
            If the money isn’t based on spins OR numbers of performances (and it’s not), then he’s just making stuff up. It’s hard for me to accept that as being honest. It’s an unfair and dishonest comparison.
            But even if you accept his math, it doesn’t excuse the fact that Pandora pays songwriters a fraction of what it pays labels and artists. And THAT is the key issue, not comparing Pandora to FM.

          • BigA – Just agree to disagree with Brad Hill and move on.

          • Sure, no problem. I’ve heard the complaints directly from songwriters. Their complaint is not about the per song rate. They don’t care. A #1 song on FM can make $1 million for a songwriter. Yet Kevin Kadish, co-writer of All About That Bass, testified in Congress that his streaming royalty for that song was $6,000. Peeples is not going to make Kadish feel better by telling him the per song rate is better than FM. At the end of the day, the discussion is about the money, not the rate.
            The songwriters negotiate their revenue share with FM. They don’t with Pandora. That’s what this is about. Songwriters want to negotiate and get fair market value for their songs, as they do with FM. However, that won’t happen now. So that’s my last post on this subject. I appreciate the opportunity to present another opinion. Thank you for your patience.

          • I am a fan of several independent artists. Not all singer/songwriters out there are hating Pandora, etc. The reason is simple. It has to do with exposure. The smaller the profile of an artist, the more likely that artist is to feel that it’s essential to have his or her music available in all places where listeners are listening.

        • Not at all. I just wonder why Pandora has this issue with FM radio. It’s like conservative talk radio, where Obama is the reason for every problem. Maybe Pandora has forgotten that it owns an FM station, and it bought that station in an effort to pay less money to songwriters. So Pandora is actually part of the problem. Maybe Spotify should point that out.

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