Pandora and Music Labels Finally Agree?

Since its conception in January, 2000, music labels and Spotify have been at odds. Even last week, Pandora announced it would pay $90 million to settle a lawsuit over royalties for artists who recorded music before 1972. Because of a legal loophole, Pandora was able to play songs on the internet radio services without paying royalties to artists. While Pandora has been at odds with labels, they agree with labels about one thing.

They hate Spotify.

Spotify and other streaming services of its kind have been growing, effecting the music industry in different ways every year. According to Nielsen’s 2014 Report, only 257 million albums, CD or digital, were sold. This was an 11 percent drop from 289 million the previous year. Streaming, however, has 78.6 billion audio streams with 85.3 billion video views. This is an exponential increase from the previous year. The numbers clearly show that consumers are leaning more towards streaming their music, instead of buying digital tracks or albums.

While labels and artists hated Pandora for royalties, they all agree that Spotify’s music service gives consumers too many options. While Pandora allows its listeners to listen to virtually any song, these songs are picked by the service. In addition to this, Pandora breaks up these songs with advertisements. On the other hand, Spotify let listeners listen to ANYTHING they want for AS LONG as they want. Pandora CEO Brian McAndrews said during Thursday’s earnings call, “I think one of the challenges for the industry, I think, and for Spotify is how many of those teens are actually paying for it? And an on-demand model is meant to be paid for and subscribed to.”

McAndrews brings up a point. According to Spotify, there are sixty million overall active users of the service, with fifteen million paying users. Spotify offers a “freemium” option that has advertisements, but users are still allowed to listen to anything they want anytime. This freedom is hurting Pandora, and bringing up not only licensing issues, but questions about streaming in the future. In addition to this, Spotify still isn’t even a profitable. In 2011, Spotify brought in revenue of $236 million, with a net loss of $57 million.

Spotify isn’t the only company facing net loss. Pandora is too, with a net loss of $20 million in 2012. How do these companies effectively pay artists, but still make a profit? Many say that we should get rid of streaming services all together. Others say we should all just “suck it up” and agree to pay $10 a month, helping the industry go and supporting artists, with no “freemium” option.

Peter Kafka of Re/code translated Pandora’s earning’s call, and their issue with Spotify, in a great way. “Look, it would be bad if our free, not-on-demand service had to compete with free on-demand services forever. But those things are as bad for the music industry as they are for us, so we bet (we hope!) they’re going to go away.”

While it’s obvious these services aren’t going away, it’s going to be interesting to see what happens.

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5 Responses to Pandora and Music Labels Finally Agree?

  1. Matthew Walker November 13, 2015 at 6:37 pm #

    I am a Spotify user. Not only that, but I am willing to pay $9.99 so I don’t have to listen to advertisements and can pick whatever song I want to listen to at any time. I am also a Pandora listener, but I don’t pay for its services. I like Pandora’s services because I don’t know what song is going to be next, with Spotify I do know. That’s why I pay for it. However, On Pandora I only get a certain amount of skips so I have to use them wisely. With that being said i think that music producers and artists have a right to the royalties that they are supposed to be paid. Artists everywhere have their music services taken from them due to disruptions in technology. As it is stated about how artists think Spotify gives their users to many options, they absolutely do. The way we access our music today is phenomenal. We have outlets like YouTube, Spotify, and Apple Music at our disposal. There is not need to go to Best Buy and pick up CD’s. These outlets used to never exist. I remember waking up early and watching music videos on MTV2. No one anymore even buys hard CD’s. The music industry has changed rapidly over the years. Even the way we listen to music in our cars. We have auxiliary cords that make radio non-existent in many cars. With the advancements in technology we have to find a way to pay artists for their services. This article already proves what I know but increases my awareness of disruption in the music via the increases in advancements in technology.

  2. Patrick McDonald November 13, 2015 at 11:40 pm #

    Until services like Spotify and Pandora offer a better way to function without relying on wifi or data, I will not be a user. I understand spotify has the offline option that allows users to essentially store certain songs and listen without using data from their mobile provider but I have other reasons for staying away from streaming services. I am a avid hip hop/ rap listener and much of the music I listen to is offered through free mixtapes from the artists. These songs and mixtapes are unavailable on streaming services which in my opinion is a major reason why many music fans, especially hip hop fans, are staying away from these new services. The rap world is different than other genres in that rappers are constantly putting out freestyles over other artist’s songs or just throwing random snippets out onto the internet. You see it more in this genre than any other and that is something I do not want to lose by becoming a user of spotify.

    I am also happy to admit that I am still a purchaser of physical albums. I will go out to a target or best buy and but the CD and burn it to my itunes. I believe a solid number of music fans are still in this boat- people able to hold on to something tangible in exchange for money is something certain people will never turn their backs from. It’s nice to open the CD and see a note written from the artist about their journey to create the music and spotify surely lacks that personal touch. In the months of September and October I bought 4 physical CDs and downloaded at least 8 free mixtapes that would not have been available on streaming services.

    There has been the argument about whether or not these services help or hurt the music industry and individual artists. I recently read a great article that points to the idea that the services are more or less having zero monetary affect on the music world. Here is the link: http://fivethirtyeight.com/features/maybe-spotify-isnt-killing-the-music-industry-after-all/.

    It is important to note that the exact royalty paid out to artists from Spotify is unknown but the article does a fantastic job at describing that even at a low estimate, Spotify isn’t changing revenues by much. The most simply take away from the link I shared is the last sentence, “Spotify may not be changing the overall size of the music industry’s revenue, but it’s still shaping how the money is divvied up.” I think this, more than anything is what scares consumers, investors and musicians alike.

    Overall this article was very enlightening and definitely a great topic. The music industry is constantly evolving and always in the limelight. I think something that could be mentioned is the service TIDAL which has been born to give the artists control over their own music. It will be interesting to see what happens in the future with TIDAL and Spotify, especially because major artists such as Taylor Swift have taken their music off Spotify. Perhaps we have a musician mutiny upon the music industry.

  3. Jessica Thomulka November 14, 2015 at 7:55 pm #

    I’m glad that someone decided to write on Pandora and Spotify because I have been wondering, for a few years now, how they manage to make money. Sure, they advertise, but I know when I hear an advertisement I essentially “turn my ears off”. I may be one of the few people who still buy music by the album. Whenever my favorite artist’s put out new music I immediate pre-order the album because for me there is something so inherently great about holding the CD with all of the new songs in my hand. Plus CDs are convenient to keep in the car so I don’t have to waste my phone battery while driving, but that’s just me.
    The model of streaming music for free is great for consumers because it’s at no cost and there is really no downside. I actually enjoy the variability of Pandora. I do not think that streaming music will completely replace digital tracks because again I think people like to have possession of their songs. This is evident because the blog post claims that both Pandora and Spotify are losing money. While I do not use Spotify and I cannot speak to its service, I know that if Pandora started to charge for its services, I would no longer use it.
    I think it is advantageous for artists to embrace this “streaming culture” because they too are losing money. I think this goes to show a shift in the music industry in general. Today musicians are designing their music toward performance art because they are making their money through performance and ticket sales. As consumers I think we have the obligation to pay for music because although some may argue that musicians are paid too much for what they do, making music is their job and they deserve to get paid just like everyone else.
    This places the burden on Pandora and Spotify because for every royalty they don’t pay or try to get out of paying they are actually hurting the people who make their business possible: the artists and musicians. This is part of the reason I still buy my favorite musician’s albums. My reasoning is that if I do not support them financially, then they will not continue to produce the music that I have come to enjoy which to me would be a tragedy.
    I think internet streaming services like Pandora and Spotify have the potential to break the music industry if they continue to try and find loop holes and other ways to get out of paying musicians for their work. For consumers it only follows logically that one would use Pandora and Spotify because it is free and convenient but as soon as these services start to charge they may lose their customer base. If they lose their base then consumers are just going to find another way to listen to music for free. It is wise for Spotify and Pandora to get on good terms with musicians because a partnership may be exactly what they need to serve both of their needs.

  4. Walker J. Mondt November 14, 2015 at 10:13 pm #

    The music industry is the one that people love the most, but don’t want to pay for. This has been a problem for many years, it is nothing new. I remember my mom telling me a story once about how her and her friends used to put in blank cassette and record their favorite songs from the radio. Nowadays kids want to hear their favorite songs, but they do not have the money to buy them, and many parents are reluctant to buy the music for them. Of course this is where the music industry has to balance the pros and cons. Back in the old days, musicians could use the radio to market their music for free. People would hear a single and that would inspire them to go buy the album. Now however, kids can listen to all the singles they want without ever buying an album. This in turn hurts the music industry, and many musicians have complained about this.

    I’ll admit, I use Pandora quite frequently. It is great for playing background music while studying. You do not have to worry about picking a song you like every time one ends. I haven’t used Spotify, but I do know that people enjoy using it and are willing to pay for it. I believe that his is the future of music. Music companies will create databases full of music which people can pay to have access for. Then through those membership fees, and advertisements, these businesses will make a profit. While this may still be depressing for music artists, it may be the only solution.

    I also found it interesting that both companies, Pandora and Spotify, are operating with net loses. This only shows the confidence they have in their company’s future. I also agree with what the comment before me said when it said that these companies should work towards creating a better relationship with the musicians. With a stronger relationship, a greater compromise could be reached. Those who only want to use music for free will also need to realize that musicians need money for their work. How else could they continue to create music if they were too poor in the first place? It is a shame that this industry has to endure this problem. Music is a core part of all of our lives. It plays to our emotions and brings us joy and happiness. Hopefully, one day this problem can be resolved.

  5. Dana Guittari November 20, 2015 at 12:24 am #

    I have always been a fan of music, and I have always used music streaming services. I remember one of the first applications I ever downloaded on my iPhone was Pandora. Of course I, like the majority of people in my generation, opt to use to free service rather than pay for the monthly subscription. And that is the problem with music streaming services like Pandora and Spotify: they offer free subscriptions. Of course I am going to put up with the occasional advertisement interruptions over paying $5 a month just to cut off a 15 second interruption from my music streaming. And that is the way the majority of people my age think. Now I have never personally used Spotify, so I am not exactly sure how it works/what it’s terms and conditions are, but a large amount of my friends do use it and love it for the fact that it is free access to whatever songs they would like to hear whenever they want to hear it. Actually, the first time I even heard of Spotify was last year when Taylor Swift took all of her music off of Spotify. In an interview she did with Rolling Stones Magazine on the issue, she stated, “I’m not willing to contribute my life’s work to an experiment that I don’t feel fairly compensates the writers, producers, artists, and creators of this music. And I just don’t agree with perpetuating the perception that music has no value and should be free.” When you look at it from that perspective, of course it seems unfair to stream artists’ music for no cost – which provides them with no compensation for their hard work. But the truth of the matter is, if it’s not Pandora or Spotify, someone will find some other way to stream the music for free. It just so happens that Pandora and Spotify are the major players in this game and that is why they are under such heat. Relating to this, someone I know does not use either of these services to stream music, but downloads all the songs they wish to have to their iTunes account for free. What they do is go on YouTube and find the song they wish to have. They then use the application that converts YouTube videos to MP3 sounds and downloads the song to their computer. And after doing that they can download the song to their iTunes account and they now own the song, for free, and do not need to use any streaming services. So even without these major streaming services, music is still going to be downloaded and streamed for free, and the streaming services will continue to operate at a loss, and artists will continue to not be fully compensated for their work. This is not necessarily fair, but it is the reality of the matter. People want to hear their music, and they do not want to pay for it. And they will find a way to do just that.

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