(from Billboard Magazine, September 12, 2013) As Pandora begins negotiations of royalty rights in January, this will be one of the major challenges that the company will face. Brian McAndrews, the new CEO of Pandora, will be under a lot of pressure; although he is confident that Pandora is “prepared and will do the right thing.” Like in the past, debating with the federal Copyright Royalty Board could go on for years with the government playing referee. McAndrews states that Pandora has a “longstanding belief that musicians should be fairly compensated for their work.” For each song that is played by Pandora, it pays the music industry a royalty fee that added up to over 200 million dollars last year (this rate is set up by the U. S. government).
Pandora allows users to listen to music on Internet devices for free, as long as the listeners put up with a few ads. These ads may increase within the next year, unless the listener wants to pay more in subscription fees to avoid them. Pandora started restricting listeners to 40 hours of free listening time without subscription per month. By doing this Pandora hoped that they would have to pay less in music royalties, Pandora’s biggest hurdle to profitability, but the results were not in Pandora’s favor as the listeners began falling.
Pandora now has 72.1 million monthly users and had revenue that hit $427 million last year. Some artist believe that they are not compensated enough for their contributions to Pandora’s success. For example, David Lowery, lead singer for the alternative rock band Cracker, blogged that he could “make more from the sale of a single T-shirt than Pandora paid him for a million plays of the bands hit ‘Low’ in the final three months of last year.”
Pandora believes that royalty rates are too high and has tried numerous things to bring them down. Per song, Pandora pays each artist $60 for every 1 million songs streamed. Even though artists disagree and continue to attack Pandora, the music industry realizes that they still share a future with the company.