With the weakened world economy, content in general faces plenty of gloom and doom. Advertising models are severely weakened. But, oddly, in the world of music, there are some positive signs that the shift to decentralized, online distribution might actually be going well — and maybe economic pressures are simply ensuring the parties involved find some way to make the adjustment.

And music distribution is becoming wonderfully weird and diverse – maybe far more so than in recording’s so-called golden age, an era in the past dominated by racial division, predatory labels, and a few dominant big businesses. (Money is tough as always, but it does make you wonder why we complain so.)

One sign of the shifting landscape: online streaming site Pandora is now actually calling for more performance fees — for terrestrial (AM/FM) radio, anyway. Ars Technica has been doing a great job of following the issue:

Pandora now pushing radio to pay for music, too

It seems Pandora – along with other webcasters – was able to cut a deal on webcasting rates, in a battle that put music listeners and makers at the center of a legislative struggle. Legislators had been the ones to intervene and save webcasting, under pressure from listener constituents and even musicians. Pandora founder Tim Westergren told CDM how dire a failure on these rates could be.

What the deal means is that we can return to the rosier vision of how online streaming could help promote indie musicians, something Westergren put eloquently in a 2007 interview with CDM. But looking back at Tim’s arguments from two years ago, a central tenant was fairness — meaning big, corporate radio broadcasters really ought to face a level playing field and start paying musical rights owners. (Public radio in the US, by contrast, is likely to benefit from the online deal, as public stations increasingly rely upon wider online distribution and even pledges from loyal online listeners. Moved from Omaha to Montreal? You can still listen to your favorite station.)

There are signs that not only have online music pirates moved to download stores like iTunes, eMusic, and Amazon, but to streaming solutions, as well. In one of a number of recent studies, for instance, the UK is showing online file sharing down markedly as legal streaming grows. To me, the most interesting thing about this is that it disproves a long-held industry assumption that habits, once set, wouldn’t change. For better or worse, the online world doesn’t seem to work that way.

Meanwhile, the lines between “indie” and “major” are blurring quickly. Again, Ars Technica:

Universal/TuneCore deal opens major doors for indie artists

The surprise there is that it’s not so much about distributing Universal artists exclusively – online artist services firm TuneCore is now opening its membership base to Universal and visa versa, so that Universal can discover new artists and artists get licensing and mastering services from UMG without the need for exclusive contracts with the major label. In fact, if there’s one word that sums up the future of music deals, “non-exclusivity” seems to be it.

(clarification) As kj notes in comments, I think saying this opens “major doors” is a bit of a stretch. It opens a small door at a major. But on the other hand, the idea of a label becoming an open service shop for artists – for offering, say, mastering for a fee as part of their revenue – is new and, provided it actually works, interesting. And it’s clearly part of a larger trend.

But I think the best news is the spread of unusual means of musical distribution. Eliot Van Buskirk writes a round-up of favorites for Wired Magazine. (And yes, while top ten lists are overused, they’re brilliantly appropriate when you actually have ten really awesome things.)

10 Weird Ways to Distribute Music

From soup cans to music boxes to iPhone apps, there are a few underlying trends in there. One is experimentation in the delivery mechanism itself (including 8-tracks and cassettes, really). The other is in what you can do with the media, as with the interactive remixable iTunes album, or even art books that extend what an album actually is.

As these spread, though, I have to optimistically think that this is more than desperation or brief novelty. Distribution media haven’t just shifted from one popular form to another; they’ve imploded. We’re rapidly approaching a “minority majority” situation in which no one format dominates the others. We haven’t gone from the compact cassette to the CD to the MP3. We’ve gone from the CD to MP3s, MP4s, lossless files for aficionados and lossy streams for kids who love on-demand, vintage formats, physical media and art books and software. Instead of being strange anomalies, these other formats may actually be the new normal. I think in a way the business model doesn’t matter, because, let’s face it, a lot of art making is about losing money. What drives artists is loving sharing the thing they’re making, and finding someone who wants to love it, too. Some people will make a great business model around that, while others won’t.

But if you’re a music lover, we could be facing a new golden age. And if you missed compact cassettes, good news – they’re back.

Webcasters don’t yet have to pay new fees for their broadcast. But they’re still accruing debt — fast. Sort of like our credit card debt.

Webcasters may get a small break on the minimum fee, one that could literally have shut down “personalized” radio services. SoundExchange explains the deal thusly:

Under the new proposal, to be implemented by remand to the CRJs, SoundExchange has offered to cap the $500 per channel minimum fee at $50,000 per year for webcasters who agree to provide more detailed reporting of the music that they play and work to stop users from engaging in “streamripping” – turning Internet radio performances into a digital music library.

Note the big attached “ifs”, which are vaguely worded in the official SoundExchange announcement, and sound all the more threatening given, according to SoundExchange, the previous rates are already in effect. Whichever side you’re on here, you have to give SoundExchange some credit for, erm, negotiating skill. “Hey, so while you’re dangled over this bridge, I wonder if we might … negotiate some small items?”

The one shred of good news: apparently Congress has applied some pressure on SoundExchange to negotiate, meaning public action has actually made some difference. Whatever the ultimate solution, it’d be nice to think some sort of public involvement might push the government to do something effective.

Wired has some good reporting on this:
Net Radio Wins Partial Reprieve as Royalties Loom

Meanwhile, I have a partial vacation to get back to. See you soon.

SoundExchange Tells Congress Webcasters May Keep Streaming [Kurt Hanson / Radio and Internet Newsletter]

A number of SoundExchange’s olive branches have been largely publicity stunts, but this seems real:

1. July 15 is no longer D-Day. SoundExchange promises that, as long as broadcasters are negotiating with them and continue to pay previous rates, they don’t actually have to start coughing up money at the new rates. In other words, instead of the July 15 deadline being the melodramatic “Day the Music Dies,” it’s now more accurately the “Day the Music Tentatively Continues Under a Cloud of Uncertainty While Mysterious Closed-Door Bargaining Sessions Try to Find Some Amicable Solution, or Not, We’re Not Really Sure.”

2. Maybe SoundExchange won’t cripple mega-channel content, after all. The one side of this we hadn’t covered was that the SoundExchange position would require a minimum of US$500 per channel — meaning services like Pandora and Rhapsody would be instantly crippled because they have countless channels, rather than individualized channels in the traditional sense. Think “dog bites off Long Tail.” Supposedly they’re now making headway on this point.

SoundExchange specifically mentioned wanting to protect the interests of college radio and NPR, and anyone else who will keep negotiating with them. And if there’s one thing they love, it seems to be negotiating.

Let’s put it this way: uncertainty is bad for Internet Radio. So even if July 15 isn’t a deadline, after all (yay!), it is absolutely imperative for the business models going forward that SoundExchange and the broadcasters sort this out. As for what this means for musicians, as many of you wisely point out, the majors still dominate music listening and none of this tends to amount to much in the way of actual checks for most music creators. On the other hand, because these services are often looking for ways to monetize content, selling the actual music remains in their best interests, as well. My sense is, somewhere beyond this dark, complex era of negotiations, we may actually start to see a real business ecosystem grow around music listening, one that’s distinct from that of the radio and CD/vinyl album era. In the meantime, negotiations continue.

Hear that? Nothing. No, it’s not silence making a political point, as with the Internet Radio Day of Silence staged last week by web radio to protest punishing new royalty rates by showing what they could cause. This is an even more disturbing silence: as the deadline for new US rates for Net radio approaches, online radio’s supporters seem to be desperate and exhausted.

Here’s the problem: net radio supporters, concerned that new rates (and the backdated royalty rates that would be owed along with them) could kill Internet radio, haven’t exactly gotten a lot of good news lately. They’ve failed to stop the new rules in the courts: the U.S. Court of Appeals denied a “motion to stay” that could further postpone the ticking clock. And, despite overwhelming public support that jammed fax machines and stunned Members of Congress, the U.S. Congress has failed to actually bring a bill to the floor. Members were happy to co-sponsor legislation and say nice things to supporters, but not actually try to pass the legislation itself.

Barring any further action, Net radio is going to have a massive bill sitting on its desk this coming Monday. It’ll cover not only the new rates, but months and months of back-dated rates. With public broadcasting in a dire situation already, and independent music struggling to come into its own via fledgling Web outlets, that seems like really bad news.

Interestingly, one major outlet — one we’re big fans of here at CDM — disagrees. Last.fm argues that this is much ado about nothing, not because they’re a UK-based company (international broadcasters are subject to US rules — sorry, guys), but because they’ve managed to negotiate independently with the labels to get rates that work for them. That’s great — for Last.fm. But I question just how relevant this is to anyone else. Aside from the fact that not every single broadcaster can — or should have to — negotiate independently with labels, there’s also the fact that Last.fm can do its own programming around what it’s able to license. That isn’t the case for, say, a college public radio station doing a webstream of its usual programming. Given the strong material evidence presented by other broadcasters, it would seem that, despite Last.fm’s smug, broad pronouncements (ironic coming from a company owned by CBS), their situation is unique.

That means one thing: it’s time to hit the phones, Americans. (Hello, Rest of the World — while our laws may indeed wind up punishing your radio, too, I’m afraid there’s little you can do, other than call your American buddies and tell them to call.)

Call your Senators (you’ve got two of them) and your Representative (one of those). You can find the information here:

Capwiz.com Townhall Contact Info

And, as I’ve said before, there’s all the reason for independent artists to make this call. The new royalty rates in the Congressional bill aren’t perfect, but they would establish a framework for setting fair rates across media in the future. The idea is not to eliminate royalties; it’s to set it a rate that expanding media outlets can cover. More growth for listeners could ultimately mean more royalty rates. And by protecting independent online outlets, artists have an opportunity to ensure the growth of digital media as a means of promoting their work, which can funnel money into better revenue sources for us, from commissions to album sales to live music ticket sales.

For more on the indie artist perspective, see Independent Artists Fear the Demise of Internet Radio from The Baltimore Sun on (ironically) July 4.

Feel free to let us know how your Congresspeople respond here in comments. And let’s hope that this largely inactive Congress can at least bring this important debate to the floor, rather than remaining silent themselves. Wherever you stand, total inaction is the worst kind of silence of all.

If you switch on your favorite radio stream and hear something unusual — people talking about Internet policy, ambient sounds, or nothing at all — you’re getting a glimpse of a world that could be here by next month. To illustrate the devastating effect new US royalty rates could have on online broadcasters, broadcasters large and small are making today, Tuesday, June 26, a “day of silence.” They’re not just being dramatic: online broadcasters from public radio stations to big services like Rhapsody have said they simply won’t be able to swallow the new rates. Small broadcasters don’t have the money, and big broadcasters can’t justify losing money to shareholders. (Worse, the rates are retroactive, so this could really damage already-beleaguered American public broadcasting.)

Here’s why the rates are bad, and how to take action today.

New Rules: Bad for Music Creators

As many readers do, I believe in fair royalties for artists. Getting royalties from online broadcasters is good for musicians. But musicians need a rate that makes sense for them. This makes sense: “Give me 50 cents for each dollar you make off my music.” This does not make sense: “Give me three dollars for each dollar you make off my music.” You can debate the former figure, but by the time you get to the latter, the other party is going to simply drop you. And this isn’t an exaggeration, either. AccuRadio, RadioIo, Digitally Imported, Radio Paradise, and 3WK recently illustrated the millions they would owe in CRB Royalties, which increase the percentage of their income that go to royalties from 11% to around 300%. Public radio is in a similar boat.

For just one example, see CDM’s interview with Pandora’s founder.

And that, of course, assumes royalties are the main source of income for musicians, when the opposite is true. I’ve talked to musicians informally — some of them pretty high up the food chain — and gotten the same response. Their biggest income source is often things like live tours. The knee-jerk response of the Interwebs to music income is oversimplified, it’s true — pundits with no experience in trying to live off their music will just say, “oh, it’s publicity, it should all be free.” In fact, I don’t think musicians should have to give up royalties if they don’t want to: they own the music. In this case, though, it’s the worst-case scenario: give up the royalties and the exposure to new audiences (because these outlets will simply go away rather than pay such punishing fees).

I think there is a lot of good debate to be had around how to charge for music, how to promote music, how to define and protect intellectual property. In this case, though, the issue is so clear-cut I feel obligated to advocate for one side. We can’t have any of those other debates if we start out with a crippling rate that makes no sense. And even if you want Creative Commons-licensed music that is royalty-free, that music will take time to flourish; if you cut off the ecosystem before it can grow, it’s in trouble, too.

The Solution: Internet Radio Equality

Fortunately, today is not the day to just sit around and get depressed. Today is a day for action. For the reasons above, and based on your feedback, I believe most musicians and composers will support fair rules for royalties.

If you’re in the United States, call your U.S. Representative and your two Senators, and ask them to support the Internet Radio Equality Act. The Act would protect webcasters from unfair rates, and set a rate that benefits music creators and webcasters alike. And even if you’re not, you’ll find plenty of good resources — and you can help spread the word on your blog / site to people who are in the US.

Contact Your Senators and Representatives Now to Save Net Radio

Day of Silence at Radio and Internet Newsletter (Lots of links)

H.R. 2060 Full Text and Cosponsors (Check out the Internet Radio Equality Act for yourself. If you agree with it, take action. If your Representative is on the current cosponsor list, thank them. If not, encourage them to cosponsor and to support the legislation.)

D-Day for Webcasters Terrific coverage and discussion at KCRW Radio Los Angeles

CDMers for Internet Radio Equality

If you’ve contacted your Rep and Senators, leave us a note in comments and let us know what they say. We’ll keep a running tally through the day of how things are going for pro-equality CDMers throughout the US. And if you’re from around other parts of the world, feel free to post links to your commentary on your site here.

The Copyright Royalty Board has delayed to July 15 the deadline by which Internet radio webcasters will pay a new royalty rate and back royalties. To the webcasters and opponents of the rate hike, the delay is a “stay of execution” (as described in a recent Live365 press advisory), one that buys time for Congressional legislation to block the new rules. To SoundExchange, the body that collects the royalties, the rules are a “final determination” on the rules, and according to a press release by the group, the extra time can be used to start collecting royalties, “providing greater business flexibility for all concerned parties.”

So there you have it:

Hurrah, the rules are delayed, and we have time to defeat them with the help of Congress. OR

Hurrah, the rules are final, and we have extra time to start collecting money from you, aren’t you as happy about that as we are?

More: New Net radio fee collections delayed [Cnet News.com]

Both sides are mobilizing. As the decision report was issued finalizing and clarifying the rules, advocacy group SaveNetRadio marched on Washington. They’re hoping to rally support for the Internet Radio Equality Act, as introduced by Congressmen Jay Inslee (D-WA) and Don Manzullo (R-IL). Whatever side you’re on, it’s hard to ignore just how weird the rules themselves are: the Congressional bill would level the playing field by reclassifying “sound recordings” as “musical works,” rather than having separate classifications. Welcome to the legal world of music royalties.

A “Smokescreen”, Says SoundExchange — But Whose?

SoundExchange, for their part, is trying to cast themselves as sticking up for the little guy, against the Big, Bad Corporation. Late last month, it claimed it was working with webcasters to find a mutually-agreeable rate — much to the chagrin of many webcasters, who pointed out SoundExchange waited until after a legally-binding rate change was already in effect to make the announcement, and in fact had no intention of finding anything mutually agreeable — only avoiding Congressional intervention. In response to the Congressional bill that attempts to intervene, SoundExchange immediately claimed the legislation would strip $50 million in artist payments, all to benefit “mega-corporate webcasters.” SoundExchange’s Executive Director John Simson singled out “mega-multiplex services like AOL, Yahoo!, Microsoft and Clear Channel.” SoundExchange even claims advocacy opposing the rates by SaveNetRadio is just a front for these same mega-corporations. It doesn’t seem to answer how these forward-looking funds would survive when stations claim they wouldn’t be able to continue operating, including those that can’t change their business model (like public radio).

Winning support in the public eye may prove difficult for SoundExchange, however. According to their own FAQ, the body was part of the infamous RIAA until September 2003. Claiming their opponents are a front for big webcasters may be tough if they represent big labels. Their board is still dominated by record industry insiders. That doesn’t mean this is exactly a battle of good versus evil, but it’s certainly a battle over money between labels and broadcasters. (Not surprisingly, the National Association of Broadcasters is opposed to the rate hike.)

The real problem I have is that no matter how much SoundExchange wants to claim the opposition is backed by large corporations — and even the extent to which that’s true — they still don’t have an answer to what happens to the webcasters who aren’t “mega-multiplex services.” National Public Radio, independent streamers, services like Pandora.com, independent artists, and many others all have impassioned arguments backed by solid numbers that show they’ll simply shut down if the rate hike goes into effect. NPR points to its hundreds of member stations, none of which can be supported by the “advertising, merchandising, and subscription fees” which SoundExchange claims will offset the higher rates. SoundExchange’s only response is a statistical analysis undertaken by their own Chief Operating Officer. There’s no input from the independent webcasters and artists they claim to be protecting. And much of the analysis simply determines that webcasting is growing, flourishing, and profitable under the old rates, which hardly disproves the scenario going forward.

Nor does SoundExchange explain why webcasters should pay a higher statutory rate (the sound recording rate being discussed) than satellite, while terrestrial radio pays no statutory rate.

In fact, in focusing on a few for-pay services, SoundExchange is essentially saying a big, loud, “*&$#*&$ you” to public radio in the US. While claiming they’re just out to make sure big, evil corporations pay their fair share, SoundExchange makes a great argument for why those same corporations will do fine even as small stations and public stations suffer. Simply put, it’s the small stations who lack the “engine of profit” that SoundExchange is claiming to target. (And there’s also no mention that all involved are also paying a performance royalty that also goes to artists. Oh, except that royalty doesn’t benefit labels.)

Two Months Left; Lobbying Battle to Heat Up

Clearly, artist royalties are a good thing. And exposure for independent music is also a good thing. And sharing revenues for successful commercial services is a good thing. And not putting streams out of business is a good thing. The solution that seems to add up to the best result for actual artists is still in my mind Congressional reform to change the rules and level the playing field across media. We need rules that don’t punish digital media while terrestrial radio gets a free pass, and that charges rates proportional to actual income rather than a crippling fee only those “mega-multiplex corporate” stations could survive.

As for SoundExchange’s attempt to win over us musicians and music lovers, if anyone can make an argument for why these smaller webcasters won’t be hurt by the new rules, I’d love to hear it.

Previously:
May 15 Could be End of Internet Radio; US Legislation to Intervene
If Streaming Rates Stand, “We’ll Have to Shutter”, Says Pandora Founder [CDM interview]
Pandora’s Founder on Decoding Taste and Promoting Indie Music [CDM interview]

The new rules are wrong on three counts:

The rules would devastate internet streams, while other media pay little or nothing. Terrestrial (AM/FM) radio pays nothing. Satellite radio pays about 3-7% of income. And yet online radio will be charged per listener, per song and will be subjected to fees regardless of proportionate income. There’s even a poorly-defined minimum fee that slaps everyone. Small stations won’t be able to afford it. Struggling public radio in the US will have to shutter streams and lose income from people pledging online and pay back fees at a time they’re strapped for cash. Internet-only services will have to shutter to protect investors from liability. And big stations and big services will have to give up, as well; even with the money to support the fees, they may be unable to justify their profit model. (One service speaking out against the new rules, for example: Yahoo! Music.)

The rules would hurt artists’ revenues. Let’s put aside promotion for a moment: the Internet has the potential to become a vital revenue stream. Internet radio should pay a reasonable rate for using music. If those rates are set so high that the streams have to shut down, though, we’re back to FM and satellite radio, which pay little or nothing and play far less of our music; in the case of FM, to a smaller audience (since that college radio station that just got international distribution now has none).

The rules would hurt musical audiences and the artists working to connect with them. Losing revenues, even the small revenues from radio, hurts. Losing promotion hurts artists even more. How many artists have you discovered because you heard them on the radio? How many more have you discovered via internet streams, or discovery-focused services like Last.fm and Pandora? Compare satellite radio and the FM stations you can tune in locally, and the situation is dismal in terms of variety. This situation is destructive to listeners and artists alike. And, ironically, that means it hurts labels. Streaming songs impacts music stores, online and off, because it’s a mechanism for discovering music. (Ironically, even many online stores stream whole tracks because it helps them sell them.) Letting internet radio operate for free isn’t even under discussion; at the heart of this debate is setting fare rates and allowing Internet radio to survive.

US Legislation Offers a Solution

We’ve seen various efforts to “boycott” the RIAA, an organization of member labels that backs the collection agency in this case (SoundExchange) and has lobbied on the behalf of the new rules. But that ignores the fact that the RIAA is already working against the best interests of its members — and trying to inflict damage on the member labels’ record sales is unlikely to either change their membership status in the RIAA or the RIAA’s lobbying position, however misguided.

With time running out, a better solution is to support legislation that would intervene in the new rules. Members of Congress often don’t hear anything from constituents on this issue. As groups like Savenetradio.org flooded the Congressional switchboard with phone calls, two Members took action. The bipartisan bill, H.R. 2060, the “Internet Radio Equality Act”, sponsored by Representatives Jay Inslee (D-WA) and Donald Manzullo (R-IL), promises to set the rates at a more reasonable level related to income (7.5% of revenue, or 33 cents per hour per listener). The new legislation is backed by streamers and artists alike.

If you want to support the new legislation and you live in the United States, you can find numbers for your Representatives via Savenetradio.org’s site:
H.R. 2060 Action Alert

You won’t be alone. Pandora reports over 200,000 of their listeners have called their Congresspeople, and sent so many faxes they shut down Capitol Hill’s fax infrastructure. Pandora delivered boxes of faxes by hand. (Source: IP Democracy.)

Previously:
If Streaming Rates Stand, “We’ll Have to Shutter”, Says Pandora Founder
Pandora’s Founder on Decoding Taste and Promoting Indie Music

For more background on the issue, see the Save Internet Radio blog. Found other good discussion or information? Do share in comments.

For additional background:
Webcast royalty rate decision announced at the Radio and Internet Newsletter, which argues this royalty alone (on top of publishing royalties) could easily exceed income for the average webcaster
Copyright Royalty Board Releases Decision – Rates are Going Up Significantly at the Broadcast Law Blog

And on the Pandora blog:
RIAA’s new royalty rates will kill online radio!! and More on the Copyright Ruling

I got the chance to follow-up a recent interview with Pandora founder Tim Westergren, also published today. His outlook, like many other streamers, is bleak, and he explains why.

CDM: We’ve heard lots of estimates and analysis about what the new fees would add in cost, proportionally. Can you quantify what the new rules would mean for Pandora?

TW: For us, tens of millions of dollars. It’s really over the top.

It impacts everybody the same way, proportionally. The smaller you are, the less you’ll pay just because you don’t stream as many songs … but it’s going to hit them just as hard.

CDM: We talked before about having a reasonable statutory rate for internet radio. What happened? And why is there suddenly this enormous cumulative rate?

TW: The real problem goes back to 1998 when the DMCA was negotiated. The RIAA was able to get a different standard inserted for Internet, for the establishment of rates for internet radio. It’s different from broadcast, different from satellite radio. There’s an underlying legal standard called willing buyer, willing seller, which is only applied to Internet radio. It laid the foundation for this kind of really disproportional ruling. That’s where this came from.

This is a fee that the broadcasters do not pay at all, and the satellite providers pay one fifth of this. So it’s this bizarre inequity that has no justification. It’s a reflection of lobbying influence.

CDM: What’s Pandora doing in terms of combating the ruling, or what can interested users do?

TW: For a company like ours, and a business like ours, which is young and relatively less powerful than the NAB or the RIAA or the satellites even, it’s going to come down to listeners — 70 million people who listen to internet radio standing up and saying we’re not going to let this happen. We’re really hoping we can educate and mobilize internet radio listeners. It’s musicians, too, hopefully. This does not help musicians. On the face of it you could say they get paid more per song, that’s good for musicians. That’s true in a complete vacuum. Shutting down internet radio is a disaster for musician — particularly indie musicians. It’s the only place they get played.

CDM: Right, and it does seem like it shuts down this channel, so that the economics only work for other distribution media.

TW: It’s saying to the public, we will not let you listen to internet radio. You will be forced back into the broadcast and satellite world exclusively. I can’t imagine a man, woman, or child who sees that as a bright future.

CDM: Some people have said this will simply drive business offshore, but you’ve noted that that’s a misconception. So no service will be able to legally broadcast over the Internet to the US without this fee structure?

TW: The DMCA is only for people who reside in the US. Pandora is only legal for US listeners. And there is no license that allows any webcaster to stream internationally, unless they have agreements with the actual labels themselves. But anyone streaming music around the world is not doing it legally, unless they have complete licenses, and to my knowledge nobody does yet. But that will be a different framework if that does happen; the DMCA won’t apply there.

CDM: Would there be a way to create just that kind of international framework?

TW: Having one statuatory rate is a good example, because that is what allows companies to be born, because no small company can sign 15,000 agreements with one company. It’s an interesting condition overseas: it’s a very expensive, time-consuming process to get rights, which is absurd. Those rights would gladly be given by labels if they could get out of there own way. I don’t think you’d meet a single musician who wouldn’t be happy to have their music played on online radio anywhere in the world, even without being paid. They just want it up there. I’m a musician myself; I can tell you definitively, I’d be happy to have my music played on any music station without being paid a nickel. I’m happy to pay something — I’m not trying in any way to shortchange musicians; those are my people. I want to do it in a way that’s consistent with reasonable business practices.

“A Lose for Everybody”

CDM: It seems like having burdensome rates for Internet radio would hurt traditional radio stations, since many of them have been launching their own streams, as well as the labels themselves since this channel gets shut down.

TW: It’s a lose for everybody. Not a single winner emerges from that. They’re all wanting to move online; broadcasters have big plans to move online. This is a terrible precedent for them.

CDM: What’s Pandora’s plan, then, in the wake of this new decision?

TW: We’re sort of taking this day by day. They may easily come a point where it’s irresponsible of us to continue streaming, because we’re accruing liability — it’s not fair to our investors. If we think it’s heading the wrong direction, I think we have to stop. We have to turn it off, shutter. At some point you have to make a reasonable calculation to cut your losses.

The problem is, no industry can survive when it’s constantly under threat of some, like, tripling of its basic costs. So any temporary thing doesn’t change the fundamental problem. This is kind of our day of reckoning. Either Congress is going to let this stand and we’re going to stop Internet radio, or they’re going to fix it so that every radio company isn’t under constant threat of bankruptcy. You’ve got a bunch of companies over the last four or five years that started building a business, and now, suddenly, because of an oligopoly, a small collection of power … their business is being turned off. And that’s not a reasonable condition to run a business.

CDM: You talked about lobbying efforts — by whom? The big broadcasting companies? The RIAA?

TW: It’s the RIAA doing it. The RIAA answers to a very small collection of large record companies. I don’t have a particular issue with large record labels, but this is so misguided and counterproductive — even for their own interests. That’s the absurdity of this whole thing. There’s no plan at all: jack it up as high as you can and let’s see what happens because we don’t really understand this ourselves.

Turning Point for Long-Tail Streaming?

CDM: There was a similar uncertainty about online radio a few years ago; is it possible we’ll find a fix now as we did then?

TW: There’s been some misleading stuff said in the press, like they’ve said “all this happened four or five years ago and everybody said they’d be going out of business and we are.” Well, it did happen five years ago, and the reason we are here is because the rates were knocked back to a reasonable level. So that’s completely disingenuous.

70% of the music that plays on Pandora comes off of albums whose sales rank is 10,000 or worse on Amazon.com. We’re playing an enormous amount of music that’s comfortably down the long tail. That music will never again be heard on radio, period. No one will play it.

The hope that I hold out is that when rubber really meets the road, all the folks involved here — the labels, and artists and songs — when they realize just the impact this will have, they’ll back away from the edge. It’s one thing to say, hey, man, I’m going to make the highest price I can — that’s an easy rhetoric. But this demonstrates a real naivety about this digital music universe, to push for that so blindly.

For the original interview with Tim, and a sense at his vision for Pandora as a way of benefiting indie music, see:

Pandora’s Founder on Decoding Taste and Promoting Indie Music

Talk about new ways to discover music on the Web, and invariably you’ll come to Pandora. Using a sophisticated classification of music based on musical attributes or “genomes”, the Pandora player attempts to decode your musical tastes. Based on artists and songs you like, Pandora will build a “radio station” that parades tracks from a variety of artists it deems related, from hits to obscurities, always with the opportunity to skip songs (or bookmark and buy them).

I wanted the chance to pick Pandora founder Tim Westergren’s brain for several reasons. I was especially interested to know how Pandora’s music recommendation engine works: I was skeptical of automatic recommendations initially, as I suppose many music aficionados might be. And I wanted to know where Pandora might go in the future, and how artists could benefit from the service. Could tools like Pandora help raise niche artists out of obscurity?

Little did I know that the week after sitting down with Tim, Pandora and all other internet radio broadcasters would find their future viability threatened by new licensing rules. Tim says Pandora will simply close its doors if the new fees are left to stand. See the follow-up to this interview in a separate story.

With that in mind, though, I find a lot of what Tim had to say about Pandora all the more valuable. The service offers some unique ways to find music, already has some major advantages for artists, and could have even more possibilities in the future. Tim revealed how the Pandora attributing system works, and how someone named Matt Nathanson was inexplicably the center of the musical universe for a period of time. (Matt Nathanson, proving the Michael Jackson of the dot-com age will be a statistical anomaly?)

Westergren was in New York on a tour that had already taken him to 50 meet-ups in 50 US cities in a year, talking to users. Some users were so passionate that meetings went on for four hours, and Tim promises to keep doing them “until I drop from exhaustion.” We sat down in a Starbucks, of all places, to chat — the pre-programmed, non-interactive Hear Music stream blaring in the background.

Inside Pandora

CDM: You’ve gotten the chance to hear from your users all around the country. Has that impacted Pandora in any way?

TW: A lot of the stuff that we build is dictated from stuff that people are asking for. Recently we did a thing called QuickMix — that’s a feature from listeners. We had “I like this song, but for a different station.” “Don’t play it for a month.” Alphabetize the playlist. The whole backstage, having audience information. Most of the stuff that we do comes from user feedback.

CDM: Talk to us a little bit about your personal background. Before you founded Pandora, you started your career in music making. How did that lead you to create the Musical Genome Project and Pandora?

TW: I’m a musician. I was a jazz piano player when I was little — kind of self-taught, and then studied in college. After college, I played rock bands for about seven or eight years, touring around the US, having the independent musician experience for a while. Then I spent three or four years as a film composer. The job of a film composer is to figure out the taste of a film director. And you do that by a musical conversation — you play songs for each other. And you have to glean from that what they like about music. I did that for a while, and that was kind of the beginning of the idea of attributing, because I was essentially trying to figure out the musical genome for a given film based on the director’s preferences. Between that and my interest in helping independent musicians get heard, which was my own background for many years, the idea sort of came together, propelled by the excitement that was going on in late `99.

CDM: It seems like you were among the first, if not the first, to do this kind of attribution in this way.

TW: I think there’s always been attributing of some time. We were the first ones I think to do it comprehensively. I think most companies have used data mining for it — they draw recommendations or playlists for radios from comparing the other listeners.

CDM: Right, whereas you actually go through with people and evaluate the music itself. And this is done by hand? How does that work?

TW: It’s all manual. So if you’re a musician, you come in the morning and log in and there’d be a menu of songs that need analyzing, and a shelf of CDs. You’d grab one, and launch into an analysis. What you’d see in front of you is page after page of music genome templates of musical attributes. And you go through one at a time and score them, close to 400 musical attributes, and those represent all the details you could imagine of songs. When you’re done, you have this big kind of fingerprint, and you dump it into the database, and you find out what it matches to later.

CDM: How big is that database now?

TW: Over half a million songs.

How Pandora Performs, and How Its Founder Listens

CDM: Are there areas of the algorithm that you feel are particularly weak, or particularly strong?

TW: Where it’s weakest is in lyrics. Where it’s strongest … outside of lyrics, I’d say it’s pretty strong. I think it tends to do better and better the more complex songs get, because there’s more there; there’s more detail to capture. So the more intricate the arrangement, the more intricate the composition, the more it uses the power of these details.

The challenge with an artist is, when you type in an artist to launch a station, you’re giving us really diffuse input. Take Elvis Costello. He’s done a bunch of different things in his musical career. So when you say you like him, we don’t know what you like — what is your sweet spot? And so, we’re going to try stuff out from all over his catalog, stylistically, until you tell us what you like or don’t like. So I think what happens is often times a listener will enter an artist, and they have a very specific idea about what part of that artist’s sound they like.

CDM: Right, and I guess that’s the sort of drill-down that happens as you use the thumbs-up, thumbs-down tools.

TW: It’s kind of like pruning a tree, finding just what part of it you want to listen to.

Our mode of doing this is to find things that are musically similar. There are other reasons that music gets connected, that have to do with socio-cultural things. But that’s not our thing. So we aren’t going to connect two radically different artists musically — even if they’d be on the same bill. We don’t know what their social milieu is.

CDM: So how do you listen to Pandora?

TW: What I do is I tend to listen to a station, and as I like songs I buy them. And when I have a few, I go buy them on iTunes and create my own playlist from them, and then listen to them over and over again until I’m sick of them — and then go back to the radio. I tend to listen intensively with music. I notice it as it’s happening, and it draws me in to do something, and then if I find something I’m very compulsive about buying them and experiencing them over and over, which I can’t with Pandora.

CDM: Do you still listen to traditional radio, or has Pandora completely replaced it for you?

TW: I’m a big NPR junkie.

CDM: The words part.

TW: Yeah. Although they have fabulous, fabulous music. I don’t listen to a whole lot of commercial music. I listen to public radio all the time.

Pandora’s Future

CDM: Now, I’ve noticed there are some areas that are missing, like there’s no classical music. Will any of that change over time?

TW: We’re [working on adding] classical now. The other thing missing is world music … so we have some Latin music, Portuguese, but we’re basically Ameri-centric, English-centric. Eventually we’re going to allow you to search stations for all sorts of things.

CDM: It’s interesting to me that at the same time you have the rise of internet radio stations with human DJs, at one end of the spectrum, like the increasing popularity of stations like KCRW [Los Angeles]. And then, at the other end of the spectrum, you have things like Pandora. Do you suppose both will continue to grow?

TW: I don’t think there’s one right answer. People have different things they like. There are even many right answers for people for how to build an online system that has no DJ at all. I think people look for different things from the radio. Some look for company — they want a personality they can reliably hear and they just like to hear their voice, what they have to say. I think all of the different approaches have their merit. If they have an audience, then that’s enough.

CDM: Well, and I suppose what’s interesting here is that there are human hands involved somewhere in each — both Pandora’s human-ranked attributes system and KCRW’s freeform DJs. So, what’s next for Pandora, as far as what you can talk about? Where do you want to take the technology?

TW: In the long run, Pandora needs to be mobile and ubiquitous. It can’t just be when you’re at your computer. It’s got to connect through stereo systems, when you’re walking, when you’re in a car — just like regular radio is. All those things are fair game for us.

Mobility I would call our #1 priority right now.

CDM: When you go mobile, will that mean adding DRM?

TW: I’m not sure if we’re going to DRM that stuff. It’s going to be a lower bitrate because that’s the only way you can deliver stuff over a cellular network, which may be by itself the answer.

CDM: Beyond mobile, where else do you see Pandora’s future?

TW: I would say our real dream is international, the other big, big bucket. It’s a bit of a mess right now because of licensing, but I’m hopeful that we’ll do that. And I have some really big dreams of what I’d like us to become, not only available legally everywhere but we have music from everywhere in the genome. So you can be here, and have a musical journey that takes you off in all sorts of directions.

What we’re seeing, unfortunately, is a country-by-country thing — it’s a legacy of the old record business, and the way labels are set up — and they have territories, so there’s not one standard like the DMCA in the US. I think over time that’s going to come around because they’re going to see they need to do things to allow these new services to flourish, because that’s where their future is. But I don’t blame them now for being cautious and uncertain about it; they just don’t understand it. They don’t know what it’s going to look like ten years from now. It’s hard to be the one to say, okay, man, let’s pull our finger out of the dyke and see what happens.

Mash-Ups, Users, and Bandwidth Bills

CDM: Pandora has attracted a number of technology mash-ups; the two most popular seem to be one combining it with eMusic for purchasing and another that integrates with Last.fm’s music “scrobbling” and community features. What’s your take on these mash-ups — obviously, you wouldn’t support anything that encourages stealing music, but are some of them positive for Pandora??

TW: It’s the ultimate compliment if someone takes your product and spends the time to make it into something else. We certainly don’t want people who hack it to steal music — that’s not cool. We try to break those things as often as we can; that’s wrong.

CDM: Have you broken them successfully?

TW: Oh, yeah. In the long run, there are a couple of things that we have to be careful of. One is if it allows people to something illegal, of course. The second is if it allows someone to deliver a version of Pandora that we have to support that doesn’t allow us to put advertising on it — so it’s kind of free and no advertising. If someone did that and it got big, then we would have to close it down. It’s expensive to stream those hours.

CDM: How much of your overhead comes from bandwidth?

TW: [Bandwidth cost] is substantial, and it’s only growing because we grow so fast. It’s amazingly linear, but now it’s starting to do this [steepens hands]. As more people hear about it, there are more people to tell people about it. Growth has an inherent exponential curve to it. But it takes a while to hit critical mass.

CDM: What are the demographics of the listeners like?

TW: Demographics of our listenership is literally from people in their late 80s down to people in their early teens. There’s a concentration of people who are in their late 20s and 30s, and they’re a little bit more male than female in that demographic. But I think that’s a reflection of … those are the people who find out about things first, because they’re connected in technology. I can say with total conviction that it doesn’t have a target market. Its target market is anyone who’s been disconnected from music and wants to get back in the game. And that’s everybody, except maybe a 16-year-old who has music coming out of their ears from their friends. Even then.

CDM: Anecdotally, I’ve been very impressed with the variety of people who like this, from people who are very technically savvy to casual computer users. It seems like the major achievement there is the sliding album cover interface. What went into that design?

TW: The challenge when we launched this was how do we create something very simple but that explains how it works, too. It has to convey the idea of a genome — what does it mean when you type in a song, what’s happening? But it can’t do that in a way that requires you to read three paragraphs of text, or six clicks to a glossary or something. That’s why those panes pop up, why we start with just one search box, why there’s no software to download. People have most definitely responded positively to simplicity. Most of what’s built by other Silicon Valley companies is built for themselves — they’re all tech geeks or music geeks, so they build things that they would want. And that tends to be more complicated — that’s the temptation.

CDM: What strikes me about your advertising is that you integrate the music player with ad sites, so you go to a Budweiser site and get a Pandora station from Budweiser. Much to my surprise, a lot of that music was actually quite good. Have these been successful with users?

TW: Oh, yes. The objective that we had was to try and marry [advertising] with the reason people are there in the first place. So, obviously, music-oriented ideas, features, and so on … For a brand, having a musical identity is a huge thing. Music is such a denoter of brand. And so they have pretty strong ideas about really wanting to identify strongly with sounds. And that’s one thing those locations allow.

CDM: How are those playlists built; are they lists of songs?

TW: No, you seed it with the artists and songs, whose sounds — what kind of music — you’d like to see come out of the station. We’re not allowed for legal reasons to program a station.

How Pandora Pays, and How Artists Can Make it Pay

CDM: I did an article two and a half years ago and tried to research licensing fees, via publishing fees from ASCAP, BMI, and so on. It seemed like there was real uncertainty about how this would be licensed, how the model would work. Has that changed now? [Ed. note: This discussion turned out to be eerily prescient as a DMCA court decision threatens the model for Pandora and all internet radio; see my follow-up interview for Tim's thoughts on that.]

TW: Well, two and a half years in this world is an eternity. I would say that it’s gotten much more clear. The business economics around it are a little more transparent now, so you can have a more informed conversation with a record label, like this rate’s not going to work, and here’s why. It’s had a lot of time to breathe. It’s still not fully resolved, there’s still some arbitration involved. It’s a matter of is there a change in the costing of it. But I think the idea of a statutory license is there to stay. That’s going to be the umbrella.

CDM: The fixed license must be good news.

TW: Oh, yeah. Years ago, a lot of online radio services launched and found out a few years later they had a big bill, and they all collapsed [when the DMCA was launched]. They thought they’d be like terrestrial radio, and not have to pay mechanical royalties, just publishing. And it turned out not to be that way.

CDM: The fact that you pay fees to organizations like ASCAP means that artists get some of that income from streaming plays, correct?

TW: [You the artist] give a piece of it to the agency that’s collecting it — like ASCAP or CESAC or SoundExchange, and then you keep the rest depending on whether you have a label.

CDM: So far we’ve talked largely about listeners; what would an artist get out of Pandora — especially as many of us at Create Digital Music, of course, have an interest in that?

TW: I think it benefits artists in lots of ways. First of all, Pandora does not distinguish between well-known and unknown artists at any step of the way. The only way in which we do is, if a song charts we will get it in as soon as we can. So as soon as a song pops into some kind of chart we immediately buy it and get it in right away. And that makes sense because a lot of people are likely to be trying to launch stations from that artist or song. Setting that aside, if you send me a CD or recording in your living room, it has just as much a chance of getting in as the latest release from Universal Music, all based just on musical quality. So if your CD is really great, it’ll go in.

We get tens of thousands of recommendations every month, between listeners, things sent in from artists, listeners, labels, managers, things from our own research … 30, 40,000 a month.

CDM: So is there anything that you can do as an artist, once your album is on Pandora?

TW: You do get played a lot on Pandora, because a lot of people are listening to it — and it’s only just beginning. You can sell stuff of it. And it encourages people just to build fans that come to your shows, that are introduced to you in the context of a well-known artist that they like, that they’re accustomed to. And in the long run, our intention is to make available to bands all sorts of interesting tools so they can take advantage of the data, and use it to drive things like where they tour, or what kind of records they make, or what bands they open for. All the thumb feedback and all the listener information, we can make that available on an anonymous, aggregated basis to an artist. So you could go and say I’m going to tour the southwest, what are the four cities I’m going to hit, and you can go in and look it up and see where the fans are.

I used to do this, I used to be in a band, and I would have killed to be able to drive 15,000 miles less and go to better places because I was able to get my hands on some kind of research like that.

CDM: We’ve seen the player, of course — what would you be able to do from your side, as an artist?

TW: If you’re in the James Jones band, you can send a link to all of your listeners, your email distribution list saying listen to my Pandora radio station you’ve created — you plus your creative brethren, your sound links. And that’s a useful viral tool.

Life, Music, and the Mystery of Matt Nathanson

CDM: You started off as one person trying to figure out how to understand musical taste working with a director. Now, having seen Pandora at work, has your perspective on what relates different music and tastes changed?

TW: I’ve always thought that you couldn’t really totally understand someone’s musical taste. The best that you could do is to get them in a neighborhood where they’re likely to find something they’ll like. I continue to believe that now having seen this — Pandora isn’t 100% accurate by any means. But I also do believe that you can understand someone’s musical tastes in musicological terms. It’s not the only ingredient, but it’s a very substantial and powerful one. And I think it’s describable. I used to do this with friends, I used to pinpoint, this is the part of the song you like — I’ll tell you why you like it. I think that’s a reality. I think it’s proving to have absolute validity. Pandora is really, really good at consistently playing the stuff you like. It’s not perfect, but it’s really good.

CDM: What about when the Pandora algorithm surprises people, though — would that surprise ever be desirable?

TW: I think it depends on how different it is. People get pretty pissed when they hear something they don’t like — it’s, like, what’s going on here? And we do a little bit of our own proactive adventuring for you. We’ll take the song and kind of bend it around and emphasize different aspects through the playlist to make it more interesting.

We wrestle a lot with how repetitive should it be? We could make this completely arepetitive and just never repeat songs. And I’m certainly as a case study, I love repetition if I like something. What’s it like in the first day, in the first week, in the first month, in the first year — how does it evolve to stay fresh over time?

CDM: So which stations have worked best for you personally?

TW: My Ben Folds station — I just can’t miss with that. He’s just so utterly in my sweet spot as a musician that anyone who kind of circles around him — he’s a great pianist, he’s a great melodist, interesting harmonies, interesting arrangements — all the ingredients that I really like. So he works well for me. I have some great bluegrass stuff that I listen to. I got a shared station that I really like that I got from someone the other day.

I don’t usually keep very many stations — I’ll keep six or seven, and then I’ll erase them. But those two have survived a while.

CDM: Are there Pandora artists that are especially popular?

TW: There was an artist — Matt Nathanson — who, for a reason we cannot explain to this day, was far and away the most popular artist on Pandora, played the most often, by a weird order of magnitude. We thought, like, is he the center of the genome? We had no theory about why it happened. It’s diminished over time, but it was a funny sort of strange quirk. I don’t know if we have a clear upstart who’s replaced him, but it became an inside joke that Matt Nathanson was everybody’s favorite artist.

CDM: So, are you making any music now?

TW: I went completely cold turkey for about five years, and I’ve started to get back into it. I’ve dusted off the piano, and I’m back at it. It was a long point in my life. And you know, we had a couple year period where Pandora was really all-consuming. I was so underwater with it … now I definitely feel freer; I have more energy.

Follow-up, in the wake of new royalty rates for online streams: If Streaming Rates Stand, “We’ll Have to Shutter”, Says Pandora Founder

Music lovers, online tools are getting more useful. They can even recognize that song you can’t remember (boy, there are there some evenings of my life I’d like back), and keep you from missing your favorite artists’ gigs in your home town.

Midomi lets you search for artists and songs the old-fashioned way, via text search. But it also lets you perform “voice search” by singing with a microphone. Here’s the extra hook for vocalists: you can put your own performances in here and get rated on your talent. It’s like Google meets American Idol meets artificial intelligence:

Midomi, via Music Gadgets.net

Next up, how often have you heard your favorite, legendary artist played blocks away from you — the week after it happened? There are various online solutions to this problem, but iConcertCal is unique in that it does the work of entering your favorite artists for you, by searching your iTunes library. Now, of course, this could lead to some embarrassing moments, so if you haven’t already cleared that guilty pleasure tune you ripped when you first installed iTunes, now’s the time:

iConcertCal, via the XO Wave Blog

iConcertCal works for both Windows and Mac versions of iTunes. Nice, but anyone know if there’s something like this for MediaMonkey?

Pandora lovers: Tomorrow, I’m having coffee with the founder of Pandora, the nifty music auto-discovery tool. Got any questions you’d like me to ask him? Let me know in comments before tomorrow morning (Wednesday) New York time.