Here’s how royalties are being paid for all three Pandora services.

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

Now that Pandora Premium has been given a broad rollout — you may have seen the marketing campaign — people in the music industry may be wondering how Pandora’s royalties are being paid to artists and labels. The direct licensing agreements Pandora has reached with labels has brought some changes to how royalties are paid for all three tiers: the familiar ad-supported radio service; Pandora Plus, an update of the ad-free, subscription radio tier Pandora One; and the new Premium tier.

The short version is all parties get paid regardless of the tier or the type of license. Not all royalties take the same route to their end recipient, however, and some of those routes have changed recently.

The two subscription services, Plus and Premium, pay royalties directly to labels. Both tiers follow the norms of subscription services covered by direct licensing deals between service and rights holders. The ad-supported tier pays the artist share through SoundExchange but pays labels directly.

Premium is Pandora’s new $9.99-per-month, premium service with on-demand features. When a direct deal is in place, a track’s Premium royalties are distributed directly to record labels. (Tracks not licensed directly are streamed on non-interactive radio. More on that below.) Artists receive their royalties from their labels, not from Pandora or SoundExchange.

pandora 1A subscription premium service is different than a radio service. Direct deals with rights holders allow a premium service provide a high level of interactivity: select and play specific songs by specific artists; create playlists; skip forward and backward an unlimited number of times; and download tracks for offline listening. This combination of features goes well beyond what a non-interactive radio service can offer.

The details of Premium royalties vary from license to license and are confidential. However, in general, premium services pay out about 70 percent of revenue to rights holders. About 57 percent of revenue goes to record labels. The remaining 13 percent is split by music publishers — they get the larger share — and performance rights organizations. At the standard rate of $9.99 per month, and using these general industry figures, annual revenue per user is $120 and rights holders’ 70 percent is worth $84 per annum.

Not every track heard in Premium is covered by a direct license, however. When a license has not been obtained directly, Pandora will utilize the compulsory license available to non-interactive digital services. This is the approach Pandora took until direct deals were signed last year. For these tracks not licensed directly, Premium listeners will hear the track only on radio stations — that means no on-demand availability — while Plus and ad-supported listeners will lose the interactive features that allow for replays, skips and online listening (more on Plus in the next paragraph). And for these tracks not licensed directly, all royalties are paid to SoundExchange for distribution to artists and labels.

For spins on the ad-supported tier, artists are continuing to receive their royalties through SoundExchange just as they did before the direct deals. Even though direct deals were put in place, both Pandora and record labels feel that routing royalties through SoundExchange is fair to artists and should be continued. (This means artists receive the ad-supported royalties regardless of the terms of their label contracts.) SoundExchange takes its usual fee of roughly 4.6 percent (its 2015 rate); the performance rights organization says it has “the lowest administrative fee of any major collective management organization in the world.” Given the size of the ad-supported tier, the vast majority of artists’ radio royalties will take this route.

The way labels are receiving their ad-supported royalties has changed, however. Under the direct licensing deals, labels will receive their ad-supported royalties directly from Pandora, not through SoundExchange as before. Because of the confidentiality of the licensing agreements, the per-stream rates are not being made public. But artists and labels can rest assured they are receiving a better rate; record labels traded the new replay function — a non-statutory feature — for a more favorable payout.

Pandora Plus is the result of these direct licenses. Plus is an upgraded version of Pandora One, the $4.99-per-month, ad-free service that complemented the core ad-supported tier. Plus gives users with unlimited skips, replays, and a handy offline listening feature that automatically downloads a user’s three favorite stations and Thumbprint Radio, the station based on the entirety of a user’s thumb history. When a user is outside of cellular service — a dead zone, an airplane, a subway — Plus users can listen to the downloaded stations.

Like Pandora One before it, Plus pays a royalty rate that’s higher than the ad-supported rate. One difference, however, is that Plus’s royalty rate is not made public. This is a shift from Pandora One’s system. Pandora One paid a predetermined, per-stream rate set by the Copyright Royalty Board every five years. Again, details vary from license to license and are confidential. But for some context, in 2016, before the direct deals were in place, the statutory rate for subscription radio services was 0.22 cents, or $0.0022, per spin. (See the Copyright Royalty Board’s decision here.) A single spin on Pandora One would generate that 0.22-cent royalty.

Plus royalties now follow the typical path taken by subscription royalties. Up until the direct deals, artists and labels received Plus royalties from SoundExchange. But, as is the norm with subscription services operating under direct licensing agreements, Plus is paying all royalties directly to labels. If track is not covered by a direct license, Plus reverts to the statutory license and the track lacks the interactive features enjoyed by licensed tracks.

A Pandora Premium video featuring The Gorillaz. Listen to the group’s Pandora mixtape here.

Regardless of product tier, Pandora provides transparency into what people are hearing. With the free-of-charge Artist Marketing Platform, or AMP, an artist is able to see total stream counts, the most popular songs and markets with the most streams, and streaming activity over different time periods. A related tool, called Artist Audio Messages, lets an artist record a short message that will stream to fans. The message could be a “thank you,” an offer to hear a new track, or call-to-action to buy an album or concert ticket. It’s a powerful suite of tools. The streaming data is especially pertinent to the topics of this article. SoundExchange doesn’t provide transparency into streaming at different services. Record labels and distributors don’t provide information on streaming activity, either. AMP tells an artist which songs are hot, charts daily streams over a period of time, and shows markets ranked by most streams.

To recap, here are the three tiers and how royalties are paid for each.

Ad-supported tier: artists get royalties from SoundExchange; labels get royalties directly from Pandora.

Pandora Plus and Premium: all royalties are paid to labels; artist receive their royalties from labels. Tracks not covered by direct deals are played on only non-interactive radio stations under the statutory license, and the resulting royalties are paid through SoundExchange.

Anna Washenko