Trickle Down Innovation Primer: Pandora Earnings and Insider Sales

Here’s some interesting numbers on Pandora:

Ad Supported Service                                                        Subscription Service (Pandora One)

2012 Revenue                       $240 million                               $34.4 million

Year/Year growth                 101%                                                87%

% of total revenue                 87%                                                 13%

Did your gross income grow 101% from last year? Or even 87% from last year?

Trickle down innovation apologist Erik Kain writing in Forbes has a mildly interesting analysis of Pandora’s flimsy PR although reached entirely the wrong conclusion:

The point of Westergren’s post is not just to show off how much artists can earn on Pandora, however. It’s to point out that Pandora, and many other internet radio sites, are forced by the RIAA [utter bullshit] to pay higher fees to musicians than traditional FM radio.

This is where the post gets a bit more…controversial. On the one hand, Pandora is obviously giving many musicians a huge leg up; on the other hand, they want to start paying much lower, more competitive rates.

First of all, it is absolute fantasy to say that the “RIAA” sets the rates, and Westergren knows it.  For starters, it is not possible for the RIAA to license anything.  The RIAA is a trade association, not a licensing agency.

The current rates were set by a long process of multilateral negotiations among a wide variety of parties and  SoundExchange as well as an extensive hearing before the very Copyright Royalty Judges that Westergren now wants to replace through his lobbying efforts.  The SoundExchange board includes the American Federation of Musicians and the American Federation of Radio and Television Artists, major labels, indie labels and artist representatives.  Westergren is very well aware of this.

Second, even if it were true that the RIAA did licensing, Mr. Kain completely misses the point with this line: “…Pandora, and many other internet radio sites, are forced by the RIAA to pay higher fees to musicians than traditional FM radio.”

Actually, the opposite is true.  Musicians, artists and producers actually are forced by the radio lobby to give away the music played on terrestrial radio for free–unlike every other country in the world except for China and North Korea.  In other countries artists get paid for airplay and somehow the world survives.  Not just FM, by the way.  (That “FM” qualification is completely nonsensical–but don’t feel bad, Mr. Kain, you are in good company.  I’ve never read a tech journalist who got this right, although I freely admit you guys are the smartest in the room.  You’d have to be in order to cover Serious Men of Science, right?)

Why does the radio lobby have the upper hand on artists?  Maybe because there is a radio station in every Congressional district and they control the editorial content of the news and political advertising on those radio stations?  Just a wild guess.  Not to mention outgunning artists with lobbying dollars through the all-powerful National Association of Broadcasters.  So Mr. Kain is on the side of Clearchannel?  Unsticking it to The Man 2.0 and sticking it to the weirdo freak musicians as a great man once said.

I don’t expect a journalist to take the time to do their homework to figure this out because it’s the rare journalist that actually takes the time to understand anything having to do with the music business when they are presented with the opportunity to bash the RIAA.  Westergren also knows that.

If Westergren and the Pandora Minister of Truth Mollie Starr wanted to be honest about their motives, they could point to this July 2009 quote from David Oxenford, one of the attorneys who represented the webcasters in the last negotiation (that established the current rates):

In sum, while far from a perfect deal that webcasters would have selected on their own [yes, life really is a bitch you know], this deal does provide another option for webcasters with substantial advantages in many area to those that qualify for treatment under this deal. While no doubt the fight will continue over the standards that should be used to determine royalties in future proceedings, so that parties don’t need to enter into these after-the-fact settlements [which is not happening now because the 2009 deal is in place until 2015] when one party has a substantial bargaining advantage with a favorable decision already in hand, SoundExchange [including the artist unions] should be credited for agreeing to reach this deal when there was no compulsion that they do so. This deal presents certainty for many webcasters – eliminating further litigation and negotiation costs while setting rates at which a class of webcasters can go on with their operations.

And then Westergren could try reading his own blog from July 7, 2009:

For more than two years now I have been eagerly anticipating the day when I could finally write these words: the royalty crisis is over!

Webcasters, artists, and record labels have reached a resolution to the calamitous Internet radio royalty ruling of 2007. Pandora is finally on safe ground with a long-term agreement for survivable royalty rates. This ensures that Pandora will continue streaming music for many years to come!

Many people played a role in getting here. Pandora listeners provided support in extraordinary numbers in Congress, and a group of reasonable and constructive voices on the label and artist side of the table (groups like A2iM) helped forge a middle ground that, while perhaps not meeting all of our aspirations, still represents a thoughtful and reasoned outcome under the circumstances.

For this we are truly thankful and want to express our deepest gratitude to everyone involved.

So now he wants to blame RIAA.  Aside from being factually incorrect, it’s enormously condescending to the indie labels, artists, background vocalists and musicians who are all equal members of the SoundExchange bargaining group.

If Westergren is serious, he will freeze all sales of Pandora for his own account–the Pandora insiders are selling and selling and selling.  Westergren’s most recent sale of his shares on October 3 for $901,986 tells the tale.

What do we call this?  As a certain old soldier used to say, well that‘s bullshit for starters.