Pandora Wants to Change The Law, Cut Musicians’ Internet Royalties

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November 20, 2012 ‐ By Ann Brown

Rihanna singing live. Adam J. Sablich / Shutterstock.com

Atlantic Records once alleged that legendary R&B singer Ruth Brown owed them $30,000 from advances the company had given her. No, she said at the time, Atlantic actually owed her. She fought and fought, even gaining the support of the Reverend Jesse Jackson. In 1989, Atlanta “forgave” her debt and paid her $20,000 in overdue royalties. Because of her efforts, the royalty payment system was reformed.

We’ve all heard the Behind the Music stories of artists who sold millions but made next to nothing. Most recently, we got Toni Braxton’s take on her bankruptcy filing and the low pay she received despite being one of the biggest artists of the ’90s. TLC went to the press years ago with their money woes, claiming that they never received their fair share of  the money they generated for their record company and manager, Pebbles’s company Pebbitone. As the NY Times reported in 1996, “TLC’s contract with Pebbitone gives the group 7 percent of the revenues from the sale of the first 500,000 copies of the debut and second albums.”

And who can forget when Prince went around with the word “slave” written on his face, saying that his record company basically owned him and his music. At the time he stated, “I became merely a pawn used to produce more money for Warner Bros.” Eventually he was able to break his contract with the label.

Rihanna and Missy Elliot are following in the steps of Brown, and are fighting to reform the royalty system — this time in the digital arena. The artists were among a group of 125 singers and musicians to sign an open letter to Pandora Media Inc. opposing the online music company’s proposed changes to how artists are compensated.

Pandora is currently lobbying lawmakers in US Congress to pass the “Internet Radio Fairness Act,”  which would change regulation of how royalties are paid to artists for music streamed over the Web. According to the Internet music company’s website focused on the issue, laws have been passed as innovation in the music industry has developed. As a result, “satellite pays about 7.5% of revenues and cable pays about 15%, while Pandora pays more than 50% of revenue in royalties.”

So here’s the wrinkle, the new bill would cut by 85 percent the amount of money an artist receives when their songs are played over the Internet. Pandora says it needs to pay artists less in royalties in order for them to continue to stream music. “A sustainable Internet radio industry will benefit all artists, big and small,” Tim Westergren, Pandora’s founder and chief strategy officer said in a statement.

Pandora actually doesn’t make money off of streaming music. Most of Pandora’s profits come from advertising. While Westergren claims slashing the royalties are necessary, the company saw it share of total US radio listening rise to almost seven percent, up from about four percent. But, as Yahoo! reports, “Pandora’s success has been double-edged – the more customers it gains, the more money it has to pay overall for rights to stream music.”

The Internet Radio Fairness Act is a bipartisan bill. If Pandora does get its way, the change won’t come anytime soon. The current rate is set until 2015.

What’s interesting is that the artists are being asked to take a cut while listeners will get the same level of service. Do you pay to listen to online radio, something like Spotify’s premium service?

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