Pandora and Paul Williams: Lots of Bark, but How Much Bite?

NEW YORK ( TheStreet) -- The next time you're at a cocktail party and the conversation turns to Internet radio and music royalties, there's a sure-fire way to distinguish between the well informed and the hopelessly ignorant.

Do the discussants draw a distinction between performance royalties and songwriter/publisher royalties?

All else equal (particularly, forgetting the fact that AM/FM radio does not pay a performance royalty), entities that license music pay two royalties: A performance royalty and songwriter/publisher royalty. Michael DeGusta's blog post and attendant pie chart provide a sound illustration, using the 1,000,000-plus spins Cracker's Low received on Pandora ( P):

Pandora pays its performance royalty to SoundExchange and its songwriting/publishing royalty to groups such as ASCAP and BMI. These groups keep some cash and distribute the rest to the performers, songwriters and such.

Earlier this month, I met with hall of fame singer/songwriter and ASCAP President and Board Chairman Paul Williams at the landmark Beverly Hilton hotel in Beverly Hills. Williams has been particularly critical of Pandora's stance and attendant moves in in the royalty dustup:
Pandora is trying every trick in the book to brazenly and unconscionably underpay and take advantage of the creative labor that produces the core offering of their business -- music written by individual songwriters and composers. ASCAP has an ethical obligation to serve and protect the hundreds of thousands of small and independent songwriters, composers and music publishers we represent to ensure that they receive fair compensation when their songs are performed on any technology platforms.

Strong rhetoric. But, and I mean this is in the most positive and glowing way possible, Paul Williams' bark is bigger than his bite.

This is a genuine guy with a genuine argument against a company he genuinely wants to see succeed. Either he duped me with his charm or I am as good as I think I am at assessing first impressions.

Because there's no question, Williams is a charming guy, grateful for his success.

As Williams riffed, he wrote a song for Elvis Presley in the early '70s and, here he is today, with two credits on Daft Punk's smash Random Access Memories.

How do you not come across as charming when you humbly relay the story of how you met Elvis in Liza Minnelli's Las Vegas Riviera Hotel and Casino dressing room?

Elvis walked in. His reason for not knowing which one of his records Paul Williams wrote: "I don't keep track of that sort of thing." When Williams informed Presley it was indeed Where Do I Go From Here?, Elvis said he liked performing that one and asked Williams which album it is on. Williams reply: "I don't keep track of that sort of thing."

Elvis turned to his manager, and in his trademark drawl, playfully noted "I like this guy."

Shortly after meeting Williams, I picked up the July edition of Uncut magazine (with Bruce Springsteen on the cover) and Williams gets a mention in a short review of RAM:
... and, most ridiculously, '70s songwriter Paul Williams crafts a kind of Lloyd Webber techno-utopia on "Touch". Silly and overblown, but wittily, brilliantly so.

Some artists might take that as not the most flattering review. Though I haven't asked him about it, I'm guessing Williams would eat it up. He would laugh. He would be grateful for inclusion. He might even recite part of the review in a bad British accent. I don't know. But there's one thing I do know: The guy doesn't take himself very seriously. This personality trait many of us tirelessly attempt to acquire appears to have developed over years jammed with extraordinary success (Paul Williams wrote the freaking Love Boat theme!) and simultaneous personal struggle. (Sober for more than 25 years, Williams, along with Tracey Jackson, blogs, speaks and has a forthcoming book built around the theme of Gratitude and Trust: Recovery is Not Just For Addicts).

So when I read such harsh words from him directed toward Pandora, I find it hard to believe they're coming from Williams' mouth.

That's the first thing I asked him when we sat down. Do those words ("Pandora is trying every trick in the book to brazenly and unconscionably underpay ...") represent your true feelings? Because they're strong and combative, quite the opposite of what I gathered about Williams from our smalltalk (while we were standing), his physical stature, psychological presence and storied career.

Williams' response: Pandora sued us. And when somebody sues you, you don't respond politely.

Fair enough.

But there must be enough mutual respect between you (Williams) and Pandora co-founder Tim Westergren to set the lawsuits and public animosity aside, to sit down -- songwriter-to-songwriter -- and work out a deal both sides deem fair.

Williams' response: We're not able to do that because Pandora sued us.

OK fine. Can we look beyond royalties and discuss other ways Pandora can help generate revenue for songwriters and composers, like they can do and do do on the performance side?

Williams' response: No. Songwriters are not venture capitalists. They're people who work day jobs to pay the bills and create music at night (like the guy Williams recently met, who was serving samples of granola at Whole Foods, or Williams' conception of the woman wearing headphones laying down tracks while her baby naps beside her).

This is my interjection, not Williams' words: Songwriters and composers do not have the same opportunities performers have to monetize their work in more wide-ranging ways. I have brainstormed on how the pure songwriter (as in, he or she does not double as a performer) can make money beyond royalties and ad revenue sharing. I can't come up with many. And the ideas I do have provide no guarantees.

As I muse about being more "visionary," Williams returns to his original point: ASCAP represents songwriters and composers. That's where our interest lies. We're focused on nothing but ensuring the people who license the content they create receive a fair rate for their work across platforms.

The more I research and write on this issue, the more I think I see how it's going to end. My meeting with Williams didn't artificially influence or persuade me (I have checked myself on this countless times in the last week or two) as much as it confirmed the trajectory I felt like I was on all along.

Pandora makes the most compelling argument on the performance side. The songwriters, at least as articulated by Williams, make the most compelling argument on the publishing side.

As the chart from Page One of this article suggests, there's as much disagreement between performers and songwriters as there is between either group and Pandora. But that's a discussion for another day -- how the total pie gets divvied up between the two parties and subsequent sub-parties at the time of payment and at the point of distribution.

For Pandora's fiscal year ending Jan. 31, 2013, the company paid 55.9% of revenue to SoundExchange for performance royalties and about 4.7% in non-SoundExchange royalties (payments to songwriter/publisher groups).

There's a fundamental conflict here. Songwriters might argue that these two numbers -- 55.9% and 4.7% -- should be closer together. From the performer and labels' perspective, they perform the music, support it with tours and considerable investments therefore should collect a larger chunk of the pie.

Again, all interesting issues, but best saved for another time. Because, I can tell you this, Paul Williams is having none of it. And I can't say I blame him.

After I put all of my energy into tearing apart a complex issue, I like to try to boil down to something close to black and white. That's the opposite approach of most of the rest of the tech, financial and music media with relation to the royalty story. Sadly, most start from black and white, leaving a trail of dichotomy to the bitter, confusing and ultimately meaningless end.

As I have gone through this process -- and watched harsh rhetoric, half truths and outright lies dominate the conversation -- I have come to a simple conclusion, one I think Pandora will end up realizing (if it already doesn't).

I'm repeating myself, yes, but, in this mess, you can't make a sane and logical point too many times: Pandora has a more compelling case on the performance side; the songwriters and composers have the more compelling case on the publishing side. Again, Pandora can generate not only royalties for performers, but all sorts of new revenue tied to touring, merchandise sales, advertising and others avenues mere mortals have not even begun to conceive. It's not quite the same song for songwriters and composers.

As such, that group has the most meaningful beef.

There's no way in the world anybody in their right mind can defend the discrepancy between what Pandora pays in performance royalties and what Sirius XM ( SIRI) satellite radio, television and broadcast radio pay (or don't pay).

I've heard every argument in the book; none of them hold up under the slightest scrutiny. The music industrial complex wants to keep a system in place that favors physical sales, turns the screws on indies and ignores the role of data and technology to drive new and additional revenue for performers ( see, e.g., the structure of Apple's ( AAPL) iTunes Radio proposal to independent labels).

Simply put, there's zero vision from a group of people who should be and have the massive opportunity to be among society's most visionary -- performers of music.

However, until you find credible ways to broaden the compensation scheme for songwriters and composers, you'll be hard-pressed to convince me that Pandora shouldn't pay more than (roughly) 4.7% of its revenue to the organizations that distribute chunks of that money to the actual creators. On the flip side, the 55.9% of revenue it paid to SoundExchange last quarter needs to come down, whereas everybody else's rate needs to go up. Each and every party must take an active role in helping performers generate the highest value possible from their music.

That's where and how Pandora must act before others steal its thunder. Buy up or partner with the Soundwaves and Ticketflys of the world, companies focused on harnessing data to unleash the monetization monster that is music.

From there, Pandora will receive -- as it clearly should -- a much better (and more fair) deal on performance royalties (the 55.9% chunk of revenue), which will allow it to pay considerably more to the songwriters and composers (the 4.7% piece of the pie), as it clearly should.

-- Written by Rocco Pendola in Santa Monica, Calif., and New York City
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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