TOOL at Epicenter 2009For those of you who have missed our other discussions about Pandora and the crippling royalty rates they and other online radio services pay, it goes like this…

Online and satellite radio providers pay performance rights royalties to SoundExchange of .19 cents for every song they stream, per user. So, if you listen to 15 four-minute songs in an hour, it costs them about $.03. It doesn’t sound like much, but with over 20+ million active Pandora users streaming an average of 10-14 hours per month, it adds up quick – nearly $30 million in 2009 paid by Pandora alone.

Here is my problem:

I listen to very particular music. Namely, my favorite band is TOOL. For those of you who don’t know, TOOL plays complex alternative/progressive metal (if you can even put them in a category). I’m listening to Pandora right now and they, unlike terrestrial radio would ever, are playing TOOL’s The Grudge in its full length format. The Grudge, first off, is an amazing song. You should check it out. Second, it is 8 minutes and 36 seconds long, which is par for the course in TOOL’s┬ácatalog. In fact, because my station is based on TOOL and music with similar qualities, thanks to The Music Genome Project, many of the songs they play on my station are in the 6-9 minute range. This is near double the average length of most pop songs that play on FM radio.

For those of you uninterested in TOOL, pretend that I said I listen to classical music and read on.

Maybe you’ve picked up on the basis for my complaint. The royalties for these songs are the same – .19 cents per play. However, my songs last twice as long as the average mainstream song. That means that, as a user, supporting my listening costs Pandora 1/4 as much as supporting someone who mostly listens to 2-minute punk songs, or 1/2 as much as your average pop song listener. However, at 40 hours, when I’ve costed Pandora half as much as another user, my time is still up. (This, not coincidentally, is when I switch to another service.)

Basically, two things are happening here. Pandora shuts down your free streaming at 40 hours due to royalty costs, but I’ve cost them much less than the average user. So, I’m being penalized early. Further, if I want to continue listening, it costs $.99 for the rest of the month. But $.99 buys me about 500 songs. 500 eight minute songs is over 66 more hours of music, which I will never be able to listen to. But their other users have already cost them twice as much, and are now paying them for half as many listening hours.

Since Pandora’s ad-based model relies on rotating banners that are probably set to a timer, and commercials that play every X minutes, my assumption is that they make the same amount of revenue for every hour I listen as someone else, but pay only half as much for my music use. Tim Westergren, their President, once said that they aim to make $.05 in revenue per hour, further solidifying my opinion on how that works.

So, as you can see, Pandora makes about the same per user per hour, but a user likes me costs them half as much to support. It would seem to me that, rather than charge users after 40 hours of listening, they should charge after a certain number of songs. Although, then the users who listen to really short songs are paying more per listening hour than people like me. But…that’s really a flaw in the legal system, created by and lobbied for by the music industry. So, those people should complain to SoundExchange and the royalty board.

Me, I’m complaining to Pandora – I want my TOOL, and I want it at market rate.

Joey Flores
CEO, earbits.com
joey@earbits.com
LinkedIn http://www.linkedin.com/in/joeyjflores
Twitter: @earbits

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