Pink Floyd vs Pandora: what the fight’s about (and who’s right)

How do you choose sides when a beloved band and your favorite radio service start fighting? That’s the dilemma confronting music lovers this week after members of Pink Floyd reunited long enough to pen a screed in USA Today that accuses Pandora(s p) of plotting to rip off musicians.
The episode is just the latest flare-up in a long-running rumble over royalty rates in the digital age. This should mean a sober debate on economics and policy — but this is the music industry, so instead we get lies, invective and propaganda from all sides. That’s why we’re offering a plain English Q&A of what the fuss is all about. (If you’re just here for Pink Floyd, skip to the end for a treat).
Update: Pandora founder Tim Westergen has written a forceful response, saying the recent attacks are an orchestrated campaign by the RIAA and that a number of the claims — such as Pandora advocating for an 85% pay cut — are flat out wrong.

Why is Pink Floyd attacking Pandora?

Roger Waters and his mates say that the internet radio service wants to trick musicians into supporting a law that will cut their income by 85%. The band and others like Cracker’s David Lowery claim Pandora wants to use their songs to get rich without paying a fair share. Specifically, the┬ábands are mad that Pandora is promoting a law that would reduce the amount of royalties it has to pay whenever it plays a song.

What does Pandora say?

Pandora, which has around 70 million monthly users, is upset that it pays higher royalty rates than other types of radio services. For instance, unlike AM/FM stations, Pandora has to pay not just songwriters but also the musicians who performs the songs. And, unlike satellite services like Sirius XM, which pay a “fair return,” Pandora must pay “open market” rates as determined by a panel of questionable legitimacy.
The company also believes the music industry discriminates against it in favor of internet services like iHeart Radio, which is controlled by big radio incumbent Clear Channel. The royalty rate issue is a make-or-break issue for Pandora, which reported that 80 percent of its revenue last quarter went to content acquisition (Pink Floyd counters this is like a grocery stores complaining most of its income goes to food acquisition).

Why is this coming to a head now?

Last year, the music lobby beat back a proposed law called the “Internet Radio Fairness Act.” The legislation, championed by Pandora, would have created some consistency across a crazy patchwork of radio laws that set out different rules and rates for different types of radio technology.
But, as Billboard noted, the Radio Fairness Act isn’t dead — it’s just hibernating. The law was introduced too late in the legislative cycle to pass the last Congress, and so Pandora and others are likely ramping up to try again (and are using stunts like buying an FM radio station to get a point across). The Pink Floyd article, therefore, appears to be part of a larger PR strategy to undercut momentum for the law.

Is a new law the only way to resolve this?

The fight over the law is just one part of a multi-pronged battle that also includes the courts (where Pandora is suing one of the royalty collection societies) and an agency called the Copyright Royalty Board. Public opinion, shaped by the likes of Pink Floyd and Pandora’s volatile CEO, Joe Kennedy, will also have a hand in how all this turns out. Meanwhile, the stakes will only get higher as new players like iTunes Radio(s aapl) enter the internet market.

So who’s right — Pink Floyd or Pandora?

They both have a point. On one hand, it seems absurd that the royalty rate for a radio song should be different based on what sort of device it is played on: “Wish You Were Here” is great no matter if it plays on Pandora, Sirius or an old-school FM station. There seems to be no logical reason to discriminate against Pandora simply because it uses the internet as a delivery device.
As for the musicians, they are right to be concerned about dwindling royalties. The money they used to earn from CDs and records has dropped off a cliff and income from iTunes or Pandora is not making up for it.
Ultimately, this is a choice about how America wants to subsidize its musicians and other artists. On one hand, the multi-layered royalty system developed in the 20th century is not holding up well, and copyright law has become corrupt and over-extended — it makes sense to scrap parts of this system. But on the other hand, though Pink Floyd is doing just fine, it’s not clear if there is enough money in the system to support and develop young musicians.
The good news is that Pink Floyd and others are earning new revenue streams thanks to the likes of YouTube(s goog). Here they are playing “Echoes” at Pompeii (skip to the 3 minute mark — so good) :