Lights Out at Guerilla Radio

Russ Mitchell at Portfolio.com blogs about the impending close of the greatest Internet radio service in the history of Internet radio services—Pandora.com:

The [record] labels are intent on charging so a high price for streaming royalties that Pandora and its even-weaker peers would be forced out of business. That appears to be exactly what the labels want, despite the fact that research shows these kind of services actually increase record sales, as listeners discover new music and reconnect with old favorites.

Pandora and others are willing to pay royalties but need rates low enough to make enough profit to keep the service going. Such royalties historically have been set by government. Pandora is trying to get the attention of Congress, while making clear that Pandora's demise would cause internet radio to be dominated by the likes of Clear Channel. In other words, a faceless company's idea of mass hit entertainment shoved down our earholes.

I agree with Mitchell that the average big name record company can't tell its ass from a hole in the ground (Record company visits Grand Canyon, wonders, "Why is everyone taking pictures of my ass?"), but I'd rather see Pandora crash and burn than condone continued government interference in a rates dispute. 

What do you think, H&R pundits?

Brian Doherty wrote here on Radiohead and the future of music without record companies.

Comments

ChicagoTom | July 18, 2008, 4:17pm | #

I don't see why the royalty schedule for internet radio stations should be any different than that of terrestrial radio.

Elemenope | July 18, 2008, 4:22pm | #

FUCK!

I love Pandora.

Episiarch | July 18, 2008, 4:22pm | #

It's like the record companies are being run by Grand Moff Tarkin: "The more you tighten your grip, Tarkin, the more star systems customers will slip through your fingers".

How can they be this dumb? How can not a single one of them say "this isn't working", buck the others, and slaughter them immediately in the market?

mpp | July 18, 2008, 4:28pm | #

Pity. I will miss the Illinois Street Lounge at somafm.com.

stephen the goldberger | July 18, 2008, 4:28pm | #

I love Pandora. This is awful. The artists themselves or the younger, more fan friendly labels will take advantage of this. A major label record deal means less and less to your ability to be a successful musician as the internet matures, as Radiohead, NIN, Girl Talk, and others are making clear by streaming or giving music away for free.

Warren | July 18, 2008, 4:29pm | #

Reason #57,382 to end the unconstitutional regulation of speech and press known as "copyright"

Nigel Watt | July 18, 2008, 4:40pm | #

Reason #57,382 to end the unconstitutional regulation of speech and press known as "copyright"

I don't like copyrights, but they are enshrined in the Constitution.

MP | July 18, 2008, 4:41pm | #

Mike,

Pay attention. The Government sets the rates. They have to seek redress though the Government.

Jimmie | July 18, 2008, 4:45pm | #

The original article says that the rates have been "historically" set by Congress. I wonder why that has been so? If there's a good reason for it, I don't know why it would have to stop.

The record companies do own the rights to the music they own and they should be able to charge whatever they want for it. Private ownership and all. They don't seem terribly worried about the health of what they own and we don't have a legal or moral rationale to wrest that possession away from them.

Silly us for letting them get away with what they have for the past few decades, I suppose. Sucks for us fans of Pandora, but that's life. If we want it to be different, we have to make it so.

PapayaSF | July 18, 2008, 4:48pm | #

As loathe as I am to be on the side of government interference, isn't there a case for it here, given the (near) monopolistic status of the RIAA, ASCAP, BMI, etc.? If royalties are set by the government, why allow them to be set so high that it kills a new industry like Internet radio?

Of course, it would only kill U.S.-based kill Internet radio. Lots of the stations I listen to are in places like Australia, Poland, and France.

Timothy | July 18, 2008, 4:49pm | #

I have mixed feelings about this - Given that the government does the bidding of the RIAA on copy right (DMCA *cough*), I don't think letting them litigate this out instead would help internet radio.

Taktix® | July 18, 2008, 4:49pm | #

The Big Record companies are doing everything they can to fight off the fact that they're obsolete.

Musicians don't need the record companies to provide studio equipment, mass distribution, etc., anymore. So they're circling their wagons and fighting to keep as many settlers inside... the...

O.K. enough with the analogy, but Big Record is still fucked...

Tommy_Grand | July 18, 2008, 4:49pm | #

FUCK! I love Pandora.

Ditto

sage | July 18, 2008, 4:56pm | #

Funny I just listened to Guerilla Radio by RATM on my ipod.

andyinsdca | July 18, 2008, 5:03pm | #

I guess the fact that I've found probably 20 new artists (and purchased 30+ CDs because of it) means little to the RIAA and their goons, including the government.

Fark the RIAA.

Bingo | July 18, 2008, 5:16pm | #

1) Purchase a server in a country not beholden to US copyright
2) Stream radio
3) Profit

Team America | July 18, 2008, 5:19pm | #

Intellectual Property has as much to do with property as Social Justice with justice.

Anything that can be converted into digital format, can be interpreted as a number, and any form of ownership of a number is utter nonsense.

So, the answer to the question of what the government or the radio station or the record company should do is 'mu', Mike.

MP | July 18, 2008, 5:23pm | #

For more on Government set rates, see the horse's mouth.

BakedPenguin | July 18, 2008, 5:40pm | #

I'd just like to say that Clear Channel sucks so hard there's a tiny black hole around their headquarters. I'll listen to nothing before I listen to a CC station.

Adam | July 18, 2008, 5:43pm | #

The rates have been set by the Library of Congress since the passage of the DMCA.

One of the nice parts of the DMCA is that record companies are obligated to license their content to anyone willing to pay the royalty fees. This has had the effect of lowering the threshold for new companies to join the market (Pandora among many).

Now, of course, the record labels want Congress to raise the rates. It's never made sense to me, because it seems that a lot of little royalty payments is more than none.

Disclaimer: I used to work for Pandora, but not any longer. I still use the service, however, and would be very unhappy if it were to die.

Russ 2000 | July 18, 2008, 5:47pm | #

I guess the fact that I've found probably 20 new artists (and purchased 30+ CDs because of it) means little to the RIAA and their goons,

Nope, because I'd bet 80% of those purchases were on labels that are not RIAA memebers.

For this reason I think Pandora will survive (the long tail and all that), but if you want to hear an occasional classic Talking Heads song mixed in with your indie rock, you'll have to program it yourself with your own license.

Travis | July 18, 2008, 5:50pm | #

I'm a recovering anarchist, but I still think that most copyright laws are bullshit. I think a author, musician deserves payment for the work they have created but only for a limited time. We have grandchildren collecting royalities for books they had nothing to do with writing. There like copyright aristocrats. Disney owns the copyright to the shape of Mickey Mouse's head that anyone with a pencil & piece of paper can produce.

When gov't & corporations get into bed together you end up with rich politicians & CEO's & everyone else gets fucked.

Travis | July 18, 2008, 5:55pm | #

Taktix®,

I was thinking of stealing your name til I saw it was copyrighted.

A copyright lawyer | July 18, 2008, 5:56pm | #

Some background:
For historical reasons that make little sense, there are different copyright interests at stake with music. The publisher owns the copyright in the composition of a song, and they must be paid a royalty when the song is publicly performed. They are represented by collective groups like ASCAP and BMI, and those are the guys that get paid when you play a jukebox in a bar. These are set as statutory rates, because the transaction costs of trying to figure out who owns the publishing rights for any song, tracking them down, and negotiating a rate just to play their song are too high. The system wouldn't work. Incidentally, the statutory rights are just the default--if you CAN track the owners down, you and they are free to work your own deal instead. (BTW, the statutory rates for terrestrial radio were set to zero, as it was all deemed promotional and good for sales.)
The record company owns the rights in any particular recording of a song. You have to pay them a "mechanical" royalty whenever you want to make more copies of that song. Historically these were not statutory rates. You had to track down the owners, and they were free to say no.
Enter the era of Internet music distribution. Generally speaking music on the Internet is distributed two ways--downloads (as in, buy a track from iTunes) and streaming (as in, listen to Pandora). You might think that the logical thing would be to analogize that selling an MP3 is just like making a copy, so we should pay a mechanical, and serving a stream is just like a performance, so we should pay the publishers the statutory rate, and that's how we should treat them. Silly person! You're only half right! You see, the publishers believe that downloads are ALSO performances, so they should get paid for that, whereas the labels think that streams are ALSO copies, so they should get paid for that! Also, the rate for radio on the Internet can't be zero like it is for terrestrial, because, um...well, just because. And the government agreed with them! Hooray!

Anyway--I don't have a problem with the gov't setting rates per se, because it's it creates a necessary efficiency for a system that otherwise would be broken. But I'm cheesed off about the rest of it.

Oh, and a clarification on Adam's comment--the labels are still not obligated to grant you a royalty for the mechanical--just for the streams, which under a logical system they would receive no royalty for anyway.

Mr. Nice Guy | July 18, 2008, 5:57pm | #

Now if the rates are controlled and sites like Pandora can continue, then the millions of us who use choose to use these services can continue to do so. Thousands upon thousands of voluntary exchanges will be squelched. But hey, we'd rather have that than have (cue chilling music): government interference (chilling scream).

What?

Perfect example of what's wrong with "libertarian"ism. When government interference is used to promote/preserve competition, choice, etc., then it's a good thing. It's not the government that is bad, it's restrictions on choice and liberty that is.

Mr. Nice Guy | July 18, 2008, 5:59pm | #

Thousands upon thousands of voluntary exchanges will be squelched "otherwise."

dead_elvis | July 18, 2008, 6:00pm | #

It's also disheartening to see that for the last year my union (the American Federation of Musicians) has been fighting to get performance rights levied against terrestrial radio. "Corporate Radio has made millions and billions while we get paid nothing!" goes the cry. Forgetting that the original arrangement that was one of an advertiser getting free advertising. These people see a dried up turnip, and they just want to keep squeezing.

Travis | July 18, 2008, 6:06pm | #

"Perfect example of what's wrong with "libertarian"ism. When government interference is used to promote/preserve competition, choice, etc., then it's a good thing. It's not the government that is bad, it's restrictions on choice and liberty that is."

MNG,
It is the gov't that created the system that the music industry is now using to shut down thousands upon thousands of voluntary exchanges.

Mr. Nice Guy | July 18, 2008, 6:11pm | #

Travis
You mean copyright law? I agree, which is why I think it is fine for them to interfere to prevent copyright law from becoming a source of restrictions on public choice.

Don't get me wrong, some copyright law (created by the government) is a good thing for choice and the public (essentially creating property in ideas thus promoting ideas). But there is a reasonable point where it can turn around and restrict choice and be bad for the public.

Jeff B | July 18, 2008, 6:17pm | #

This is horrible news. I love Pandora. I cannot understand why the record companies bullheadedly continue to shoot their own feet. I use Pandora every day and it also makes me purchase more music.

If anything, I hope they are able to continue with possibly independent music, but if the Government is currently responsible for rates what recourse do they have but to petition them to lower them enough to exist?

prolefeed | July 18, 2008, 6:27pm | #

Let the record companies charge whatever prices they want for the property they own. If they get too greedy, someone will break ranks. And if Pandora goes under, there's about 300 million potential entrepreneurs who could restart something like that in a heartbeat.

Fuck, was that so hard for someone here to say?

Josh | July 18, 2008, 7:38pm | #

To be honest, I hated Pandora, maybe they have changed their algorithm since I was last listening, but the music it offered me was crap.

I started a station based upon SOAD. Now that is a great band, but the "DNA" of the song as Pandora coded it gave me bands that were poorly done copies of SOAD so much of modern hard/alt rock sucks that it doesn't help to use the few good band's DNA as a base.

Justen | July 18, 2008, 7:55pm | #

For more information on the subject check out:
http://www.savenetradio.org/

@prolefeed: The trouble with that mentality is that our anti-trust laws in this country are too weak to break up the overwhelming power of the recording industry cartel, and there is no effective means to fight against their lobbying power and army of lawyers.

Pandora is one of the most successful independent internet radio companies out there; if they can't generate enough revenue to support themselves it is hard to believe anyone else will either. What is going to happen, realistically, is that these stations will die off off and be replaced by Clear Channel style companies who either use a subscription model or have the power to negotiate favorable royalty rates.

People like me? We'll go right back to piracy when the industry fails yet again to understand what we're looking for, and hopefully eventually we'll kill the beast entirely by undermining their profitability. I refuse to buy albums from major labels these days; not because I can't afford them or I'm not willing to pay for music, but because I refuse to give the industry my money.

Anonymo the Anonymous | July 18, 2008, 8:04pm | #

To be honest, I hated Pandora, maybe they have changed their algorithm since I was last listening, but the music it offered me was crap.

Same experience. Concept sounded cool but it didn't quite work for me. The problem is each station only starts with one data point and the system learns your taste very slowly. Try last.fm. Similar idea but it's combined with sort of a wiki/social networking/"wisdom of crowds" method. Takes a holistic approach to your listening as opposed to defining your taste one artist at a time. Also provides a lot more functions in addition to music recommendations. It's pretty addictive.

Elemenope | July 18, 2008, 8:05pm | #

I started a station based upon SOAD. Now that is a great band, but the "DNA" of the song as Pandora coded it gave me bands that were poorly done copies of SOAD so much of modern hard/alt rock sucks that it doesn't help to use the few good band's DNA as a base.

My A Perfect Circle station most reliably gives good music, and yeah, I noticed that SOAD mostly provided bad metal knockoffs.

Tool and Alice in Chains also do pretty well.

Toxic | July 18, 2008, 11:06pm | #

Since the only reason the record labels can even charge royalties is government policy, they can't help but meddle.

Really what it will do is make everyone base their ops in Russia or some shit and pay the record label nothing.

Cthulhu Ftagn | July 19, 2008, 12:55am | #

There are plenty of easily available programs that let one obtain pretty much any music they want completely free and with minimal risk of ever getting caught, someone should remind them of this, and that if they continue on their current path it will just push more people into avenues that they cannot monetize at all, and that the enmity of listeners may drive them to download and share even more, out of spite, I know a number of people who put more music into circulation after they shut down napster as "revenge."

Lamar | July 19, 2008, 3:25am | #

"I don't like copyrights, but they are enshrined in the Constitution."

The Constitution merely gives Congress the power to institute copyrights. Copyrights aren't "enshrined" in the Constitution any more than the Commerce Clause enshrines corn subsidies.

Exham | July 19, 2008, 3:52am | #

Copyright power is granted in the constitution, but originally you got 24 years, with the possibility of a 24 year renewal, now its the lifetime of the creator PLUS 70 years before something can enter the public domain, I think this is far beyond what the founding fathers intended, and it's undeniable that this was done for the sake of corporate protectionism.

Timmy Mac | July 19, 2008, 7:39am | #

Thanks to the Pandoras of the world, I'd say a good 75% of the new music I've bought in the last 3 years has been by independent musicians on independent labels.

Why can't these labels and artists band together, tell the RIAA to piss off, and let Pandora use their music for reasonable royalties?

Mr. Nice Guy | July 19, 2008, 9:26am | #

"Why can't these labels and artists band together, tell the RIAA to piss off, and let Pandora use their music for reasonable royalties?"

Because in the real world trusts and such matter. Groups with great market share can be quite powerful and coercive all while technically following the "non-aggression" principle. The incentives to not break free from such organizations makes it in the rational self interests of most not to and so they don't...

E.G. A retail organization which provides you with 80% of the sales of your product can tell you "don't sell your product to my competitor or we will dump you" and you'd be an absolute fool to not comply. This can be pretty effective in shutting out any competition and then choice for the public...

crimethink | July 19, 2008, 11:17am | #

People like me? We'll go right back to piracy when the industry fails yet again to understand what we're looking for, and hopefully eventually we'll kill the beast entirely by undermining their profitability. I refuse to buy albums from major labels these days; not because I can't afford them or I'm not willing to pay for music, but because I refuse to give the industry my money.

Your distaste for the record companies and their business model doesn't justify piracy, any more than my dissatisfaction with my local grocery store justifies stealing bread from them.

You have every right not to give them your money, so long as you don't use their property.

J | July 19, 2008, 11:30am | #

I didn't like Pandora till it found my Emilie Autumn. I'm now a fan, though I don't use it every day, or even close.

Its just like better targeted normal radio. Everyone knows better targeting is bad for advertising, right?

Dr. Kenneth Noisewater | July 19, 2008, 2:48pm | #

Whaa? They best not be touchin my Groove Salad, or else it's time to mail the RIAA lawyers a few pipe bombs...

Douglas Fletcher | July 19, 2008, 10:48pm | #

I think this requires an excellent mind like our current Chairman of the Senate Banking Committee, Chris Dodd. Yes, definitely Dodd is the man to take care of this problem.

Harpua | July 20, 2008, 10:20am | #

In an odd coincidence, a co-worker introduced me to Pandora on Friday. My musical tastes are very eclectic, but I opened with Phish. It was pretty cool at the start. About 3 hours later, I was officially p*ssed that they hadn't played anything by half the groups I entered, yet managed to come up with half a dozen Beatles songs, whom I hadn't chose.

Soma is very good as background music. My personal fave is Radio Paradise. But no matter who it is, my tastes are hard to satisfy.

Yeah, it kind of sucks. But as an audiophile, there isn't much good news out there anyway. With most people listening to sh*tty MP3's, we've arrived at an odd time in history. The technology is out there to produce the highest quality sound we've ever had. Yet the majority of people would rather listen to some tinny, compressed piece of garbage simply because it's free.

But that's the market at work. More people would rather eat at McDonald's because it's cheap and convenient rather than some place that serves real food. I can only hope the record companies use their riches to make sure that DVD audio or SACD survives, but I'm not real hopeful about that either.

But as Donald Fagen said, it used to be ladie's choice. Now it's robot's choice.

M. Simon | July 21, 2008, 2:51am | #

You have every right not to give them your money, so long as you don't use their property.

And then there is reality.

Eric Hanneken | July 21, 2008, 10:59am | #

The problem is each station only starts with one data point and the system learns your taste very slowly.

Click on the downward-pointing triangle next to the station name, and then select "Add More Music to This Station."

Matt L | July 21, 2008, 2:25pm | #

Harpua | July 20, 2008, 10:20am | #

I can only hope the record companies use their riches to make sure that DVD audio or SACD survives, but I'm not real hopeful about that either.

They're pretty dead right now.

Hopefully high quality audio will make a comeback with BD-Audio (Profile 3.0).

Dave Tong | July 21, 2008, 7:41pm | #

You say "I'd rather see Pandora crash and burn than condone continued government interference in a rates dispute.". But the rates need to be set fairly by an independent arbiter, not by either side.

It's easy to whine about "government interference" but I don't see you proposing a realistic alternative.