Are Pandora’s Exorbitant Royalty Payments to Artists like Adele, Drake Crushing Them?

Have you ever wondered how Pandora, a largely free streaming music service, pays its artists? Pandora’s founder Tim Westergren dished out in a recent Pandora blog post on which artists get the most money from the site.

He wrote: “For over two thousand artists Pandora will pay over $10,000 dollars each over the next 12 months (including one of my favorites, the late jazz pianist Oscar Peterson), and for more than 800 we’ll pay over $50,000, more than the income of the average American household.”

Independent artists may not make much with Pandora, but since they’re not getting exposure from mainstream radio stations that play Top 40 hits constantly, it’s probably their best shot at getting some publicity and some money on the side.

What’s even more interesting is that Westergren mentions big name artists like Adele, Drake and Lil Wayne as artists who are getting paid seven figure sums by Pandora. That’s a whole lot of cash for Pandora to shell out for its artists — the company has recently posted a net loss of $5 million.

Even though Pandora is paying upwards of $3 million each to play Drake and Lil Wayne’s music, these big artists are not really rolling in dough, as the blog post would like you to think. The website VentureBeat caught up with Pandora about the figures presented by Westergren. A Pandora spokesperson noted that if  artists like Drake and Lil Wayne owned the copyrights to their songs, they would get 95 percent of the royalties, but if they had sold it to their record labels, they would earn up to 45 percent of royalties (non-featured musicians get 5 percent) while the record labels get 50 percent. These figures don’t count the cut that SoundExchange, an organization that processes royalties, charge. In real terms, Drake and Lil Wayne would earn as low as $1.35 million each, since it’s more likely that their songs are owned by the record label. Conversely, independent artists will get a far smaller sum after their record label’s cut.

How does Pandora pay such eye-popping royalties? Westegren blames in his blog post “a predatory licensing fee orchestrated over ten years ago by the RIAA and their lobbyists in Washington,” which has “devastated” internet radio. While Westegren and many other internet radio stations are happy to pay artists, he argues that the royalties system has to change so that internet radio can thrive and survive, not worrying about whether they will ever make a profit.

Fortunately, there is hope. The Hill newspaper reported that the Internet Radio Fairness Act is currently under consideration in Congress and would put royalties at the same level as satellite radio providers like Sirius XM. Expect internet radio stations like Pandora to lobby Congress to support the bill. Unless this bill becomes law, if Pandora is paying big-name labels and artists so much money without finding other revenue streams, it will threaten the company’s existence and keep listeners and independent artists who use this service constantly in the dark.

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