8Tracks’ David Porter: The Radio Isn’t The Record

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August 12, 2013 at 6:20 pmby Eliot Van Buskirk
8Tracks’ David Porter: The Radio Isn’t The Record

This guest post from 8Tracks founder and CEO David Porter seeks to distinguish between the two main variants of music streaming service: internet radio stations and on-demand music subscriptions. Given that so many articles out there confuse music fans by lumping these two very different beasts together, we’re in favor of clarifying the situation, which is why we asked for (and were granted) permission to repost this here.

Recent media coverage of the digital music sector has tended to lump all types of music streaming — notably, the radio-style delivery of Pandora and the on-demand access of Spotify — in the same bucket.

In fact, these two primary types of music consumption are quite different in terms of:

Value proposition
Market size
Competition
Business model
Royalty expense
There’s way too much to cover in one post, so I thought it’d be useful to drill down on each of these points of differentiation in a series of shorter entries. Let’s start first with the value proposition.

The Regency TR-1transistor radio
Radio

One helpful way to think about online music services is to consider their historical analogs. Internet radio — what Pandora, Clear Channel’s iHeartRadio, 8tracks, Songza, Slacker and others offer — is designed to function just like regular (terrestrial) radio: listeners pick a category of programming (e.g. music of a format or genre, for an activity or mood, or that “sounds like” one or more artists), hit play, and then tune in passively.

People who listen to radio — whether delivered over the air, via cable, satellite or internet — benefit because music has already been selected, reducing their time and effort. Listeners can be lazy. Unlike the 30-60 minute format of television or the 90-120 minute format of film, the five-minute format of music lends itself to “packaging” so that a listener doesn’t have to keep returning to his device time and again to pick another track. While the album accomplishes this objective to a certain extent, radio offers longer listening and greater variety.

Because radio is programmed by people or algorithm for long-form listening to a variety of artists, it is also the primary means for music discovery (for listeners) and promotion (for artists). This has always been true of traditional radio, albeit less so since the homogenization of the airwaves in the wake of deregulation in 1996. And it is even more true for internet radio, where spectrum isn’t scarce. Pandora plays a wider variety of music than terrestrial radio, and 8tracks extends even further down the Tail, with two in three tracks streamed from independent labels or artists.

As internet radio becomes increasingly ubiquitous, more artists have the opportunity for meaningful exposure, and more listeners have the opportunity for meaningful discovery.

The Technics SL-1200 turntable
On-Demand

While internet radio is the heir to terrestrial, cable and satellite radio, on-demand streaming—what Spotify, Deezer, Rhapsody, Rdio, Daisy/MOG and others offer—is the natural successor to older forms of interactive listening. From vinyl to (ahem) 8-track to cassette to CD to (most recently) digital download, sound recording formats have evolved relatively quickly over the last 50 years. But across all of these formats, the objective is the same: listeners pick a specific song or album or artist, hit play, and then tune in on demand, whenever and as often as desired.

People who listen to a CD, download or on-demand stream benefit from tuning into exactly the music they already know and love. Physical formats for recorded music are purchased and “owned” in the normal sense; digital downloads are sometimes purchased and may be hosted locally or in the cloud. A listener can stream a file she’s uploaded to a “music locker” in an on-demand manner. However, the most widely used on-demand services are those that offer a large, pre-populated catalog of music and require (or seek) a subscription rental fee.

The most voracious music consumers no doubt stand to see the most value from on-demand subscription services: rather than pay $1 for a track on iTunes or Amazon, they can instead stream it — and pretty much any other track that comes to mind — fully gratis on Spotify (subject to ads) or for $5-10 per month on any of the other on-demand services. The relative value proposition to an artist depends on how much a listener tunes in, as the rumored magnitude of Spotify’s sound recording royalty ($0.003 per play) suggests that ~200 plays of a given track would be required for an artist to earn as much revenue as they would from the sale of a download. By way of comparison, Last.fm scrobbling indicates I’ve listened to Moderat’s A New Error more than any other track, for a total of 144 times.

So, Basically…

Radio (Pandora) makes it easy to listen to a particular style of music, with less control but the ability to be lazy; once I’ve discovered new music through radio or friends, I can listen to exactly that track or artist, whenever I want, on an on-demand service (Spotify). The former promotes the sale or rental of music, while the latter — a rental model itself—largely replaces the need for listeners to purchase downloads on iTunes or another digital music store [ed. note: I agree].

Related articles

• eMarketer Finds Over 99% Of Mobile Music Listeners Tune In On Smartphones; Expects Half Of Population Will Stream Internet Radio (allaccess.com)
• Pandora: iTunes Radio will be great -- for Pandora (news.cnet.com)
• eMarketer Finds Over 99% Of Mobile Music Listeners Tune In On Smartphones; Expects Half Of Population Will Stream Internet Radio (thisindustrythingofours.wordpress.com)
• The 8 Music Apps That Will Slowly Destroy FM Radio (fastcolabs.com)
• Is It Radio? It Doesn't Matter (audio4cast.com)
• Free Internet Radio Stations in Pittsburgh (local.answers.com)

Music Publishers: “Pandora has gone to war against creators of music.”

Music Publishers: "Pandora has gone to war against creators of music."

Today National Music Publishers Association President and CEO David Israelite aggressivley joined the debate over Pandora's effort to lower payments to songwriters and music publishers.

"Yesterday, Pandora CEO Tim Westergren posted a blog on the Pandora website defending himself from the avalanche of artist and songwriter complaints regarding Pandora’s efforts to slash payments to the very creators that make Pandora possible. Mr. Westergren’s post could not be more wrong or misleading.

Put simply, Pandora has gone to war against creators of music.  For years, they’ve funded a well orchestrated campaign to lower the amount paid to songwriters and artists.  The facts speak for themselves.

- In 2009, Pandora entered into a settlement agreement with SoundExchange for royalties paid to artists, only to run to Congress a few years later arguing the rates it agreed to were too high. Pandora asked Congress to undo the agreement and lower its royalty rates.

- In November 2012, Pandora sued ASCAP to further lower the already paltry rate (only 4% of revenue) it pays to music publishers and songwriters.

- Pandora continues to complain that music publishers and songwriters should not be able to negotiate “free-market” rates and instead remain subject to consent decrees that keep rates below market levels.

Meanwhile, Pandora uses the artists’ and songwriters’ creative content to grow its business and pay its executives millions of dollars. That NMPA, RIAA, ASCAP, BMI along with hundreds of artists and songwriters have finally started to speak out is attributable only to Pandora’s continued actions against our industry.

With respect to songwriters, the low royalty rates Pandora pays are real.  Per stream numbers recently in the press were determined by reviewing royalty statements, Pandora filings and other documents.  None of this is referenced in Westergren’s blog post.

Last year, NMPA held a songwriter event at which we demonstrated how five hit-making, successful songwriters were paid minimally for millions of plays on Pandora.  In the first three months of 2012, five of their hits – arguably the most popular song written by each of them -- streamed 33 million times on Pandora.  Yet these songwriters received a combined total of $587.39 for those streams. Even using data provided by Westergren’s “independent blogger”, songwriter and music publisher interests received only $97 for one million streams of a song.  By any standard, this is unacceptable.

Westergren says that through Pandora he sees, “a future that allows tens of thousands of working musicians to finally reach the audiences they deserve.” But, due to low royalties paid by online music giants like Pandora, songwriters and artists can’t make a living despite reaching their audience.

While Pandora wages war on creators, other digital music services are entering into voluntary agreements with the music industry. I think we can all agree that digital music services are an increasingly important and significant part of the music industry.  However, without the payment of fair royalty rates to songwriters and artists, music services like Pandora will make it impossible for them to make a sustainable living from their creative work. "

Related articles

• Music Publishers: "Pandora has gone to war against creators of music." (hypebot.com)
• Getting Sensible About Pandora Royalties: An Analysis By Jay Frank (hypebot.com)
• Pandora Royalties: the Real Answer (futurehitdna.com)
• OUCH! $17 For 1 Million Plays On Pandora (huffingtonpost.com)
• Should Pandora Pay Less in Music Royalties? (businessweek.com)
• Pandora's Box (digitalcowboys.com)