Politics and Music

by Foundry

It’s a scary thing to think of these two spending time together, but the political machine and the music industry have become strange bedfellows as of late. Specifically, we’ve been following the royalty negotiations and legislative actions surrounding Pandora.

For those of you who aren’t familiar with Pandora, it’s an Internet music streaming company that allows listeners to discover new music based on what they already like. And best of all, it’s free. Jason wrote a post about his affection for Pandora recently and we all like Pandora here at Foundry Group.

Recently, Pandora has been on the brink of death, due to the threat of increased royalty payments on songs that they play. Now, it may make sense that Pandora should pay for broadcasting music, but keep in mind that traditional radio stations (AM/FM, with no static at all) pay nothing to play tracks. Satellite providers like XM and Sirius pay about 1.6 cents per hour per listener. Pandora, as an “Internet radio station” was due to pay about 2.91 cents for the same songs beginning in 2010. Of more immediate concern, the royalty rates were to go up nearly double by order of a federal panel that would have charged Pandora and other Internet radio stations on a per song basis. As a result, Pandora has been seriously considering shutting down.

So why does this discrimination between terrestrial, satellite and Internet radio stations exist? Simple. Politics. The big music labels have lobbied hard (through the N.A.B. and other organizations) to the U.S. government to increase Internet radio station royalty rates. Rationally, it would appear that the labels are better off having their tracks played as much as possible in hopes that people will either buy the music or concert tickets, but economic rationality isn’t one of the labels’ strong points. Record companies seem to think everything digital is “bad.” Furthermore, it appears that the record companies are still in the pocket of Clear Channel, the country’s largest owner of terrestrial radio stations.

We are consumers of music, whether we purchase albums/tracks, go to concerts or buy merchandise. What continually amazes us is how difficult the labels make it to buy and discover their product. We’ve watched for the better part of a decade their inability to adapt and their willingness to use strong-arm tactics to cling to their old and outdated business models. Their attack on Internet radio stations is just another example of these antics. In fact, labels’ unwillingness to adapt to the digital age in part drove our decision to invest in Topspin.

There may be some good news on the horizon, however. On Friday, September 26th, the House of Representatives passed a bill putting a moratorium on royalty rate increases and gave Internet radio a fighting chance to negotiate a fair deal with the record labels. The Senate still needs to vote for the bill and with all the current financial upheaval, it’s not clear when that will happen. That being said, we strongly encourage the Senate to pass the bill, and then we can all cross our fingers and hope that the labels and Internet radio stations can negotiate on more equal footing and structure a deal that is fair to all and keeps the customers’ best interests in mind.