Why Did Pandora Sign Away Its Right To Petition The Copyright Royalty Board For Lower Rates?

from the well,-that's-obnoxious dept

It's already quite troubling that Pandora appears to be supporting the RIAA bailout tax against radios (Pandora's competitors), but now we have a better understanding of why, thanks to a little birdie who highlighted what's going on. Among the nasty little hidden gems in the recently agreed to webcaster settlement agreement (pdf) is that, if you want the lower rates in the settlement, you have to remove any objections to previous rate arbitrations and not participate in any future Royalty Board fights over royalties:

Article 6

Non-Participation In Further Proceedings
CPB and any Covered Entity making Web Site Transmissions in reliance on this Agreement shall not directly or indirectly participate as a party, amicus curiae or otherwise, or in any manner give evidence or otherwise support or assist, in any further proceedings to determine royalty rates and terms for digital audio transmission or the reproduction of Ephemeral Phonorecords under Section 112 or 114 of the Copyright Act for all or any part of the Term, including any appeal of the Final Determination of the Copyright Royalty Judges, published in the Federal Register at 72 FR 24084 (May 1, 2007), any proceedings on remand from such an appeal, or any other related proceedings, unless subpoenaed on petition of a third party (without any action by CPB or a Covered Entity to encourage such a petition) and ordered to testify in such proceeding.

Basically, this takes away the right of any company to fight for more reasonable royalty rates in the future -- which doesn't seem like it should be allowed. Based on this, there's basically no one left who can protest future rate increases -- which means that the RIAA/SoundExchange will easily be able to repeatedly push through greater rate increases.

Thus, since Pandora and the other webcasters won't be able to protest higher and higher rates, it needs to drag others into the fight to get help protesting constant massive rate increases: hence its support of the Performance Rights tax. In theory, if the NAB (who represents radio broadcasters) gets dragged into the fight, then there's a big dog who isn't subject to the draconian clause above, and can push back on the Copyright Royalty Board for lower performance rights taxes. Of course, that assumes that the NAB would fight for lower overall rates, rather than just focusing on rates for radio, and leaving the webcasters to fend for themselves...

No matter how you look at this, it's stunning that Pandora and other webcasters would sign away their right to state their own case in front of the CRB. RIAA/SoundExchange are laughing all the way to the bank. They get to make their case to increase royalty rates... while those who get stuck with the royalty rates have to shut up and take it. Regulatory capture at its finest. Again, we're left wondering why the Copyright Royalty Board even exists. Why are a group of old judges setting the price of music anyway?

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Pandora Continues To Push Users To Vote For Shameful Radio Performance Tax

from the can't-compete? dept

We mentioned back in July how Pandora was urging its users to support the Performance Rights Act, which is effectively a government bailout for the RIAA by taxing already struggling radio stations for the right to help promote the RIAA's music. It's a travesty. The only reason Pandora supports it is because Pandora was pressured into its own ridiculous webcasting rates and wants to help bring down radio too. While I like Pandora as a service, I think it's shameful that it's now using the political process to burden competitors with a government created tax, that goes straight to the RIAA.

Apparently, Pandora has once again ramped up this effort to have the government tax its competitors. A whole bunch of you have been forwarding these ridiculous emails from Pandora that urge people to contact their elected officials in support of the RIAA Bailout bill. Most of those submitting those emails to us have said that you'll be doing the exact opposite, and are offended that Pandora is pushing you to support such a thing.

Yes, Pandora, it sucks that you got stuck with ridiculous webcasting rates that will make it difficult to remain profitable, but that's no excuse for trying to get the government to dump an unfair tax on your competitors.

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Pandora: If We're Getting Taxed So Heavily By SoundExchange, Radio Should Be Too

from the strange-bedfellows dept

Well, this is rather disappointing. Just days after caving in and agreeing to new webcaster rates that will harm pretty much everyone, Pandora has gotten right into bed with the RIAA/SoundExchange in supporting the Performance Right Act (the RIAA Bailout Act) to extend a similar unnecessary tax on radio. Pandora's reasoning is no surprise: basically it's saying that if it has to pay such a silly tax to help promote musicians, it's unfair that radio stations get away without paying something similar. But, still, it's disappointing. Rather than looking at adding value to the overall market, Pandora has basically decided that it's "enemy's enemy is a friend" and is supporting such a law simply because it will harm radio stations. This makes me think significantly less of Pandora.

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Why The New Webcasting Rates Are A Death Sentence For Webcasters

from the plainly-ridiculous dept

When the announcement came out this week that webcasters had somehow "come to an agreement" with SoundExchange over webcasts, what was unbelievable was that many presented this as a "victory" for webcasters. Hell, even SoundExchange made public statements about how it was disappointed by the rates, but it was an "experiment." But when you looked at the actual numbers, this made no sense. The rates are ridiculously high when compared to royalty rates for traditional radio or satellite radio. Michael Robertson breaks down the numbers and explains away the myths of this deal. It will almost certainly bankrupt nearly every webcaster out there. Robertson focuses on the big webcasters, and points out that the 25% royalty rate promoted by the press isn't accurate at all, and for a company like Pandora the real rate will be north of 40% of revenue -- which is not even close to sustainable.

Meanwhile, small webcasters don't get much of a break either. Live365 is pointing out that these rates will basically kill off every webcaster it hosts by requiring a $25,000 fee. As the company notes, the guy running the Armenian folk music station for $10/month isn't going to pay $25,000 and certainly isn't going to make enough revenue to pay up.

Make no mistake: these new rates are effectively going to kill off a significant portion of online webcasters. The recording industry, of course, doesn't find this problematic, because they don't like the fact that they can't control webcasters the way they can radio, so they are fine with taxing them out of business. But what a waste of what technology allows. These days, anyone can and should be able to effectively express their own musical views by webcasting what they like. And that's about to become prohibitively expensive for no reason other than that SoundExchange/RIAA have a gov't granted monopoly over any kind of broadcasting.

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Why Should Webcasters Pay 25% Of Revenue To Promote Musicians?

from the how-is-this-possibly-good? dept

After years of back and forth negotiating (and more than a couple public spats), it appears that SoundExchange and music webcasters like Pandora have finally worked out an agreement on webcasting rates. If you don't recall, the Copyright Royalty Board assigned absolutely ridiculous royalty rates a few years ago, which seemed to have no bearing on reality (random aside: no one has yet explained why we feel it's okay for a small group of judges to determine what is a "fair rate"). The original rates would almost certainly put most webcasting operations completely out of business. But before delivering that death sentence, SoundExchange, the RIAA-spinoff that gets to collect the money (and has a long history of hanging onto it for longer than necessary and having trouble "finding" the artists it owes money to), thankfully agreed to hold off enforcing the new rates while everyone negotiated.

Since then, there has been a wide variety of back and forth details until the official agreement was put in place today... and even though many of the news stories present this as SoundExchange somehow backing down and "Pandora" winning, the details, frankly, seem so out of touch with reality it's difficult to see how it makes any sense at all. The main issue is performance rights, which radio stations already don't have to pay because radio is helping to promote artists. The idea that webcasters/broadcasters should need to pay artists for the right to promote them to fans just seems bizarre and borderline incomprehensible in the first place.

Also worth noting is that the royalty rates that traditional broadcasters do pay (to composers/songwriters/publishers) averages out between 3 and 4% of revenue. So, if you really had to come up with a reasonable rate to pay performers as well, you might think that it would start around that same 3 or 4%. Even that would be a pure bonus for performers who are used to getting nothing as a royalty (tax) from radio. But... no. The agreement is an astounding 25% of revenue as a bare minimum, with a requirement to kick-in $25,000 just to be a webcaster at all.

Pandora claims they're happy about this because it keeps Pandora in business (and settles a big legal dispute, which hopefully allows them to go raise some money to stay in business). But it's a stunningly large percentage of revenue that will make things prohibitively expensive for most webcasters to really stay in business. You now have to have huge margins to get anywhere in a notoriously competitive business.

Who loses? Well, just about everyone outside of SoundExchange/RIAA. Already, despite being happy about this deal, Pandora has announced that it's sharply curtailing its free service, and if you listen to more than 40 hours per month, you'll need to start paying. Most webcasters now have a huge expense that will make it difficult for many of them to remain in business at all. Musicians are severely harmed as well. While a few top musicians might get a new royalty check from SoundExchange (when and if it gets around to "finding" those artists), most musicians will now get less exposure, making it that much more difficult for them to put in place the successful modern business models needed to succeed today. This basically just rewards the RIAA/SoundExchange and a few large artists who will get an extra royalty check. Everyone else is worse off.

Some might say the NAB and traditional radio stations also make out nicely, in that since these rates may harm webcasters, it takes away some competition, but even if the radio stations are happy in the short-run, it's a bad deal. These rates, certainly, will likely influence any eventual "performance right" that's added to terrestrial radio, and could significantly jack up the cost of running a regular radio station as well.

We're living in an era of amazing technological progress, where it's easy for anyone to go out and promote musicians to others and help get those musicians and a larger audience, and all the RIAA has done, time and time again, is work as diligently as possible to prevent anyone but itself from promoting artists. What a shame. This "deal" does nothing to help up-and-coming artists and will significantly limit their ability to get their music noticed.

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Ocean Tomo Patents Being Used To Shake Down Companies That Have Online Recommendations

from the ebay-for-patent-trolls dept

Ocean Tomo is a company that's been around for a few years, trying to establish itself as the auction house for patents. I've already made clear how troubling I believe its business model to be, but the company always tries to put a friendly face on it, claiming that it's not about aiding so-called "patent trolls" but actually reducing the problem of patent trolling. However, that (of course) isn't what's actually happening. A patent on personal recommendation systems ("if you bought x, you'll like y") was bought via Ocean Tomo by what seems likely to be a bunch of lawyers under the company name Quito (though, it's not entirely clear who's involved) and is now being used in a lawsuit against thirteen big internet companies that employ any type of rating system. The companies being sued are: Netflix, Amazon, Yahoo, RealNetworks, last.fm, Pandora Media, Slacker Inc., Veoh, Hulu, NBC Universal, CBS, News Corp., and Strands.

As you look through that list, you'll recognize that some have done significantly innovative work in taking the concept of an online recommendation system and actually making it useful. The simple idea of doing recommendations is pretty straightforward. Making it work well? Not so much. Hell, that's why Netflix is offering $1 million to anyone who can improve their recommendation engine by just 10%. The basic ideas expressed in the patent are not where the value in these recommendation systems lies. It's in the actual effort of figuring out how to make them work better. This patent has nothing to do with the actual success of a recommendation system, but the holders of it may now get a pay day just for holding the patent, thanks to Ocean Tomo's auctions. And, of course, this means that all of those companies that were actually innovating will, at the very least, now need to spend legal dollars defending against this massive innovation blocker.

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NAB Trying To Cut Off Pandora's Air Supply

from the can't-stand-the-heat,-huh? dept

We've already covered how Pandora will most likely need to shut down, if the royalty rates set for web streaming aren't changed. While there were agreements earlier this week on some forms of online streaming royalties, it was not the ones that are the problem for Pandora. Pandora has been negotiating a more reasonable rate that would let the company survive, and it has been making progress. However, it needs a bit more time. Amazingly, Pandora, the RIAA and SoundExchange all agree that they're making progress, and with a bit more time they can probably iron this out. To that end, Rep. Jay Inslee introduced a minor bit of legislation to give them more time to work things out.

So what happens? The National Association of Broadcasters (NAB) has started actively lobbying against the bill. Basically, the NAB recognizes that Pandora is a direct competitor to the terrestrial radio stations who make up its members. But, rather than compete, it's hoping that the RIAA's fight with Pandora will cause Pandora to go out of business. This is, of course, quite typical of the NAB's lobbying efforts. Remember how strongly it fought against allowing XM and Sirius to merge. It was the same situation, where it was hoping to use legal efforts to kill off competitors, rather than competing in the market. Pandora is asking people to contact their congressional Reps. to make sure that the NAB isn't allowed to cut off Pandora's air supply, just as it gets close to (finally) working out an agreement to stay alive.

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RIAA May Get Its Wish: Pandora Leaning Towards Shutting Down Over Webcasting Royalties

from the how-the-RIAA-killed-internet-radio dept

Last year, we noted that the new webcasting royalty rates pushed through by the RIAA appeared designed specifically to kill internet radio. These royalties are different and much higher than things like traditional and satellite radio, despite being much more fragile at this point in their development. As if to prove the point, Pandora, one of the largest and most successful online streaming radio providers is now saying that it's going to have to shut down if the royalty rates aren't changed shortly.

This is exactly what the RIAA wants, by the way. Even if services like Pandora introduce people to tons of music (personally, I've bought a ton of music I found on Pandora), much of that music is not from an RIAA-member label. The RIAA knew exactly what it was doing in pushing these higher rates: it was killing off alternative routes to promoting non-RIAA music. The RIAA labels have always thrived off a very limited distribution and promotion channel. After all, distribution and promotion are where record labels really make their money. Competing methods of distribution and promotion are threats to be killed off -- and the RIAA may have succeeded here (with Congress' and the courts' help, of course).

Oh, and don't think the solution is to only play non-RIAA music. The RIAA's spinoff, SoundExchange, gets to collect money on non-RIAA music as well. Oh yeah, it gets better too: if SoundExchange can't find the musicians to pay, it gets to keep the money. That's why it has a history of not looking very hard for musicians in order to pay them.

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AT&T Says It Will Cut Off P2P Wireless Users; But What About Pandora Users?

from the be-careful-on-that-iPhone dept

While those who like to claim that the US broadband market is more competitive than it really is like to point to the rise of 3G wireless networks as proof, they almost always ignore the fact that those 3G networks come with insanely restrictive terms of service, that allow the providers to cut users off for almost any activity outside of email or web browsing. For example, using such a service for video and music has been prohibited in some terms of service. Sprint was the most open with their 3G wireless until recently.

Now AT&T is admitting that if it discovers users of its wireless broadband 3G service are making use of P2P apps, it will cut them off completely, and claims that it makes this clear in the terms of service. It hasn't happened yet, but this bit of data will supposedly be used by a dissenting FCC commissioner this week to show that Comcast's traffic shaping is pretty tame compared to other "rules" out there on network usage (ignoring the very different nature of the networks in question, of course).

This raises a number of questions: If AT&T's biggest concern about P2P file sharing apps is clogging its 3G wireless network, why does it allow streaming apps to run on the iPhone? For example, one of the most popular apps on the iPhone is Pandora, whose customized streaming radio offering is super popular (and appears to work quite well). So is AT&T going to cut off users of one of the most popular apps on the iPhone? And how will AT&T respond when someone (inevitably, if they haven't already done so) develops an iPhone app for P2P file sharing as well? This really just seems like AT&T slipping an excuse into the terms of service to cut off anyone they don't like -- but in the long run it may backfire as people get pissed off at AT&T for limiting what new devices like the iPhone can do.

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Sometimes You Wonder If The Recording Industry Is Purposely Destroying Itself

from the no-more-pandora-in-the-UK dept

Back in May, we noted that the recording industry, in a shooting-itself-in-the-foot method, was demanding that music discovery site Pandora block all non-US listeners, over an argument concerning the exact licensing terms of the music that Pandora streams. The recording industry has been demanding that Pandora sign separate licensing agreements in every country, or it must block them. Now, for anyone who has actually used Pandora, it takes all of about three seconds to recognize that it's the type of service that should be the recording industry's best friend. You put in songs, musicians or even styles of music that you like, and Pandora finds you new music that it plays in a stream, like a personalized radio station. Pandora makes it incredibly easy to both discover and buy new music. If I worked for a record label, I'd be running around the world heavily promoting Pandora, and working with it to promote new artists. Yet, instead, in true RIAA fashion, it's demanding a tithe instead. While Pandora has been blocked in many countries since back in July, it kept going in the UK, believing that it would work out a reasonable solution there. Apparently not. As countless UK-based Pandora fans have been submitting over and over again, Pandora is now shutting off access to UK listeners. What does this accomplish? As far as I can tell, all it does is take away a wonderful music discovery service that helped push people to actually buy music. Only in the minds of recording industry execs would a company doing free advertising for you be seen as something that needs to be shut down.

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