New royalties are not the only woes for major Internet radio broadcasters; Pandora founder Tim Westergren shares all
(SoundExchange's recent royalties mandates are set to induce massive changes in the fledgling world of online radio. In an effort to better understand precisely what these changes may bring, I
have asked two vastly different webcasters for their thoughts. Our second respondent is Tim Westergren, Chief Strategy Officer and founder of Pandora, which creates personalized radio stations based on information culled from The Music Genome Project. Tim is also an award-winning composer, and has over 20 years of experience in the music industry.)
DailyTech: For the record, can you describe Pandora? What is its
purpose and how does it fit in the overall landscape of online broadcasting?
Westergren: It’s a personalized
radio service, that allows people to quickly and easily create radio stations that
play just the music they like. It’s based on an 8 year old effort called the Music
Genome Project, which is this enormous musical taxonomy, that, essentially, has
been a process of collecting and analyzing musical DNA for hundreds of
thousands of songs, and it’s what drives our whole playlist and creation
system.
The
goal of Pandora is something I would describe as sort of twofold: one is to create a better
listening experience for the public, and to create what will be the best radio
in the world, anywhere, any time period. (A modest goal. *laugh*) The second
piece is to help musicians, to build a musician’s middle class while
allowing a far greater and broader selection of artists to find a large
audience.
DailyTech: What is your opinion on the old and current royalty systems? Do you
believe they are/were fair to all parties involved (artists, stations,
labels, et al)?
Westergren: Well, there are a
bunch of royalty systems, and in terms of web radio specifically, I think that
they need updating. While it didn't lay out specific rates, the original guidelines that were put in the DMCA were pretty
reasonable.
But in 2002, the underlying legal foundation was altered in a way that has made
it unfair for web radio and has resulted in this crazy ruling that came out a few months ago. So, I think the guidelines that need updating, and in the
process of sort of discussing and negotiating that, I’m hopeful that when we’re
all said and done we’ll have something that’s reasonable.
DailyTech: Compared to the old royalty rates, how do you think the new
rates (especially the deal that SoundExchange is trying to push on web radio)
are going to affect Pandora?
Westergren: The new rates
would bankrupt us, along with every other webcaster in currently in operation.
Without a doubt, for us it’s a really misguided decision, and it’s
disruptive for everybody, rightsholders included: even if you increase
your rates, and if it puts those rate-paying stations out of business, then
you’re going to get nothing. These rates essentially don’t rely on the
understanding of the economics of web radio. So, I think it’s a terrible ruling
and one that needs to be fixed.
Internet radio is one
of the real bright spots in digital music, and I think that everybody is well
served by providing an economic structure that allows it to thrive. This last
rate does not accomplish that.
DailyTech: How well do you feel that Pandora were represented in the CRB's process to change royalty rates?
How well do the changes serve everyone's best interests?
Westergren: Well, you know the
reality is that, years ago, there was a fairly extended deliberation and hearing process
around [the royalties rates], and we weren’t present because we weren’t party to the original arbitration process; Pandora wasn't around back then. But web radio was
heard by this committee, and the problem was sort of two-fold: Firstly, the
committee had to abide by language in the federal statute that sort of dictated
how they could rule on that case. And that language was monkeyed with, back in
2002, in such a way that it didn’t really allow them to, in a sense, treat
internet radio in a way that’s equitable with other forms of radio; it
set a different standard for web radio.
I think the second
part of the problem is that the CRB just missed it. If you read the ruling and the
rationale as it’s articulated by the royalty board and their subsequent
followup to it, it demonstrated a complete lack of understanding of the
business that we’re in. I think that there were structural problems and I think
that resulted in a really flawed decision handed down.
DailyTech: Now, there is also a lot of concern that the royalty system
is unfair to independent stations, or stations in general that broadcast music
that is both registered and unregistered with SoundExchange, or of artists may
or may not be participating in it. Given the diversity of its catalogue, I’m sure that Pandora plays music that falls in both categories. How do you think the CRB is
going to handle this? Do you think that webcasters are going to pay royalties
on everything that they broadcast?
Westergren: I think they are, and I actually think that’s fine.
I think that webcasters in general are happy to pay royalties, they just need
to pay them at a reasonable rate.
There are sort of a couple of different
issues that you mentioned here; one is, "What is the rate?" and that is
being hotly debated. The second one is of how those rates are collected and
distributed. You’re right that although the law applies to all recordings --
whether it’s from Universal Records or some homemade CD published out of a living room -- the rates apply to all those artists
equally.
The real challenge
is, literally, getting the artist's mailing address and getting them to register with
the rights collecting agencies. Currently, SoundExchange is the largest in
terms of centralizing that role and, you know, they’re a non-profit, in some
ways they have been the most visible representative of the rights-holders side
in the big debate. In truth their function is just to collect royalties
like ASCAP. It behooves artists to contact them and register their music
and make sure they’re paid, and that is a problem in and of itself. How do
you get artists to become aware of SoundExchange and take the time to make sure
they get registered?
DailyTech: A lot of webcasters fly under the radar, choosing not to participate in SoundExchange at all. Together, everyone forms an ecosystem
that, like any ecosystem anywhere, can be kind of fragile. Do you see this
ecosystem being heavily disrupted by the CRB? What do you see happening to all
the rogue, independent stations that decide not to comply with the ruling?
Westergren: Well that’s a hard
question to answer. You’re right that, like in every industry, you have a range
of actors. You’ve got the large ones, the most visible ones, the ones that get
the most attention from the rights holders in general because that’s where the
revenue is coming from. In web radio, you’ve also got very small webcasters,
most of whom are paying royalties and some of whom aren’t, and in the end it
comes down to the artists and the folks that are representing them. What is
their disposition towards these services? Are they really damaging? Are they
materially hurting artists, and is it really worth the time and effort to find
them and shut them down or force them to pay royalties? To the extent that
forcing them to pay royalties would put them out of business, is that something artists want to have happen? I think that’s the question, and the artists-and-label community has to answer it for itself.
DailyTech: Do you have anything
that you’d like to add?
Westergren: Sure. I think
one of the important things to recognize about internet radio is the diversity
of music that it plays. I think that, in terms of why we need internet radio, a
typical online station plays a much more diverse collection of music than
broadcast radio. With Pandora as an example, we play the music of over 40,000
artists, and we have over half a million songs in our collection. On a daily
basis, 94% of those songs play, so every day, 94% of that enormous collection
is played. Of those 40,000 plus artists, 39,000 are not being aired or have
never been played on any form of broadcast radio, so it’s a real vital channel
for artists, and I think it’s one that needs to survive and it needs to be
nurtured. Not to say it gets a free pass, but as we resolve this rate debate,
we need to really keep in mind the value that it’s offering for musicians.
"If you look at the last five years, if you look at what major innovations have occurred in computing technology, every single one of them came from AMD. Not a single innovation came from Intel." -- AMD CEO Hector Ruiz in 2007
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