Pandora Isn't the Enemy, the Music Industry Is, Part 1

NEW YORK (TheStreet) -- I heard a curious interview via Bloomberg Radio on Tuesday.

I suggest you take the time to give a listen to as much of the 9 minute 15 seconds with Indie artist Blake Morgan as you can. From there I will explain why, as well-intentioned, passionate and incredibly talented as he is, Morgan, sadly, has no idea what's he talking about. He rants what is, by and large, a fatally flawed argument.

This response to Morgan's Bloomberg interview comes in two parts. Part 2 outlines how the deck is stacked against independent artists.

Right out of the gate, Morgan distorts Pandora's ( P) position on Internet radio royalties. After the Bloomberg hosts intro'd the interview with one of his latest songs, Morgan quipped "if Pandora has their way I won't get very much."

And Morgan doesn't get very much. On almost 30,000 spins at Pandora, Morgan reports income of a little more than $5.00 in total royalties over a three-month period.

When you dive into exactly how royalties are paid and divvied up among the various players, things get way too complicated for their own good. Recently Billboard did a nice job making sense of it all. I don't get deep into it here because such minutia only clouds the larger and most important points in what really shouldn't even show up on the radar screens of indie artists.

Salient Point 1: Pandora pays what it is supposed to pay. The company does not set royalty rates. It simply sends checks, at a board-mandated rate, to Sound Exchange (to cover licensing payments to labels and artists; Sound Exchange takes an administrative fee) and, as a result of a deal with the performance rights organization (PRO), to cover publishing rights for songwriters and composers. You can read a bit deeper into how that works over at The Verge.

In any event, it's no lie. Guys like Blake Morgan do not make very much money when Pandora plays their music. Drake. Usher. Taylor Swift. Bruce Springsteen. They all do relatively well. Cumulatively -- as in, take all of the spins under a particular label's umbrella -- the music industry does all right.

Salient Point 2: Does Blake Morgan actually hear what he is saying? Does he realize how, with all due respect, dumb it sounds? How meaningless this whole debate he has thrown himself into is, at least with respect to the daily existence and long-term futures of independent artists and local musicians?

Pandora pays the rates it's supposed to pay to the people it has deals with and he makes five bucks in three months on 30,000 spins. Morgan says he doesn't want more; he just doesn't think it's fair that Pandora wants him to take a pay cut. He trots out the impassioned talking points written up by the incestual machine I broadly refer to as "the music industry."

But consider the numbers . . . if Pandora came to Morgan tomorrow and offered him 10 times what he gets now, that $5.00 turns into $50.00. Even an increase at a multiple of 100, puts a mere $500 in Morgan's pocket. He's not paying rent in New York City or Los Angeles with that. Why does he -- or any other artist in the same or a similar situation (slightly better, a little worse, much worse) -- even waste his time on royalties? They have no material impact on his life. And they likely never will.

Blake Morgan and others like him are not getting and will never get rich on royalty payments from Pandora. They won't even be able to make a living.

Music labels stand to lose quite a bit more. As such, they play on the emotions -- triggering irrational thinking that spawns pointless arguments -- of people such as Morgan to protect the more meaningful cut they carve out of the royalties Pandora and Internet radio pays.

The music industry uses the struggling musician as a pawn. As the good guy in a battle against the entity they decided to cast as villain -- Pandora. Morgan's diatribe against Pandora amounts to a defense of a music industry that does very little for artists, established or otherwise. Especially otherwise.

The industry knows how to line its pockets the old-fashioned way. They know how to collect royalties while they complain about them, however they're woefully unprepared to create new revenue streams and protect and promote artists as we settle into an era of almost entirely digital streaming distribution.

Salient Point 3: Morgan made an inaccurate statement in the Bloomberg interview. He claimed Pandora says they don't want to pay for music. This is simply untrue. Pandora merely wants what it calls an equitable royalty structure. One where Internet radio no longer subsidizes the non-existent or low rates paid by broadcast radio, satellite radio and cable television.

In fact, in a bit of a contradiction, Morgan goes on to, at day's end, agree with Pandora. Morgan supports a bill revived by New York Congressman Jerrold Nadler, who acknowledges inequity in the current royalty scheme. Simply put, Nadler proposes decreasing the rate Internet radio such as Pandora pays, while increasing the rates of terrestrial radio, satellite radio and cable.

Of course, there are a million issues here. How can terrestrial radio companies, mired in debt, afford to pay anything? They require what amounts to the Pandora subsidy to keep their operations alive. (For example, Clear Channel ( CCMO) has more than $20 billion in debt it continues to shuffle around just to stay afloat). What about outlets such as Spotify that do direct deals with labels, not compulsory licensing mandated by regulators? What about Sirius XM ( SIRI) and Clear Channel, who have done deals and it appears would like to do more deals with labels independent of existing structures?

However, in theory, it make sense. Meet somewhere in the middle. And even though it presently supports the The Internet Radio Fairness Act, I'm confident Pandora would go for a compromise bill -- something like Nadler's (if not it) -- if sensible.

Because -- and I know this more than I know anything in life -- Pandora is not anti-artist. In fact, as I explained in Pandora Must Promote Indie Artists, Expose Music Industry Injustice, Pandora "has done more for local and indie artists in the last 30 minutes than the music industry has in the last 10 years." And what they do and can/will do for the struggling musicians that groups like musicFirst use and the broader industry rapes and pillages is only set to expand.

There's a reason why, as much as everybody from terrestrial radio to the music labels criticize Pandora, they continue to cut deals with them. Many, including Clear Channel's top billing sales people, jump ship to work for Pandora.

In Part Two, I explain this, while elaborating on the shocking injustice musicians such as Blake Morgan should really be outraged about.

-- Written by Rocco Pendola in Santa Monica, Calif.

Rocco Pendola is TheStreet's Director of Social Media. Pendola's daily contributions to TheStreet frequently appear on CNBC and at various top online properties, such as Forbes.

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