Recently, ASCAP launched its “Songwriters Under Attack!” campaign, coinciding with a court case that involved ASCAP and Pandora. The rather sophisticated decision in this case—which hinged on issues of the consent decrees, anti-trust, and the nature of performance rights—did not go in favor of publishers or ASCAP, so expect ongoing disagreement.
In this post, I am going to dig into a very specific claim that ASCAP makes within this campaign: “Right now, every 1,000 plays of a song on Pandora is only worth about 8 cents to songwriters and composers.” The implication of such a small number would be that the amount is unfair. Unfortunately for both myself and artists, the Fairness math may not be that simple.
I cannot help any reader who wants a clear conclusion as to whether 8 cents per 1,000 plays is fair or unfair to songwriters and composers. Undoubtedly, $0.00008 is a small number, but the math of the music industry is often a function of many small numbers added together.
What I can do, however, is try to put such small numbers in context.
As far as I can tell, this 8 cents per 1,000 plays is amazingly similar to the value of a performance to 1000 listeners on terrestrial radio. Meaning, if you divide up the value of a Spin on radio by the number of people listening to that Spin (which is how Streams are counted and accounted for royalties), we end up with a payout to songwriters and composers that is nearly equivalent to 8 cents per 1,000. For the record, when math works out like that, I kinda freak out.
[IMPORTANT UPDATE: Furthermore, I want to make it clear that I have no idea if ASCAP did its math and method correctly to arrive at 8 cents per 1000 as the payout to songwriters from Pandora. I am simply working with the numbers ASCAP chose to release to the public as part of the campaign. ASCAP's own numbers may be incorrect, and if those numbers are incorrect then so is the conclusion of the comparison made in this post.]
The equivalence in payments between Big Radio and Pandora could be the result of at least four possibilities:
- Pandora and Big Radio pay roughly similar amounts for their performance of musical works, on a per performance per listener basis;
- Pandora and Big Radio pay very different amounts for their performance of musical works, on a per performance per listener basis. However, ASCAP throws all “Radio” monies, whether from over-the-Air or over-the-Internet transmissions, together into a big pool and distributes both Webcasting and Terrestrial royalties out of that combined pool. As a result, the differences in payments from these sources wash out;
- ASCAP did their math wrong;
- I did my math wrong. But at least I will show you my math.
It would be great if we could have a very frank, and open discussion about all of the possibilities listed above, whether #1, #2, #3, or #4.
In my opinion, arriving at a conclusion regarding the Fairness of Artist Royalties requires a far more nuanced (if not also nerdy) conversation than that occurring in the Fairness Debate around these royalties. In this Fairness Debate, people are speaking at various times about quite different things:
- The fairness of a seemingly small number;
- The fairness of a less-than-straightforward process;
- The difference or ratio between two things (e.g. the monies paid to sound recording versus musical work stakeholders, or the percentage of revenue paid for music licenses by Terrestrial Radio versus Satellite Radio versus Webcasters versus On-demand services);
- “Fairness” as an influential and provocative issue.
As such, I would encourage artists to dig in and really get to know these numbers—the inputs, the outputs, and the assumptions—in order to draw your own conclusions about not only the Fairness in Artist Royalties, but also the fairness in the Fairness Debate.
Digging into the numbers:
As noted earlier, ASCAP has suggested that according to its own internal analysis a play (aka, a stream, a performance to a single listener or device) on Pandora is worth 8 cents per 1,000 plays for the songwriters and composers involved.
Unfortunately, the firm provides none of the inputs to this estimate, other than citing the estimate as the result of “ASCAP internal calculations.” These inputs would really help us. In the absence of these inputs, there are a few things we can do:
Because of how ASCAP distributes royalties—50% for the songwriter/composer, 50% for the publisher/administrator—if $0.00008 is the songwriter/composer share, then an additional $0.00008 is the publisher/administrator share.
And, we need to adjust this $0.00016 total even higher to account for ASCAP’s operating expense ratio (the share of revenues that gets removed before royalties are paid), which was 11.6% in 2012 (the most recent reporting year, according to ASCAP’s Annual Report).
Alternatively stated, since the $0.00016 for the music stakeholders is paid after ASCAP accounts for it’s costs in collecting, distributing, and even litigating on the way to those payments, we need to add the value of these collecting/distributing/litigating expenses to the royalty payouts, in order to hit the total amount paid by a music service (e.g., Pandora) to a PRO like ASCAP. In simple math: (Total Monies Paid to PRO) – (PRO expenses) = Royalty Distribution Pool
$0.00008 + $0.00008 + (X * 11.6%) = X, where X equals to the total amount paid to the PRO
$0.00008 + $0.00008 / (100%-11.6%) = 0.00018, or 18 cents per 1000 plays.
At least on the back of this napkin, ASCAP ultimately collects $0.00018, or 18 cents per 1,000 plays, from Pandora. For every 1,000 plays, roughly 2 cents of the monies paid by a Pandora go to ASCAP expenses, 8 cents cents publishers/administrators, and 8 cents to songwriters/composers.
[To be clear, the estimate above is based upon my interpretation of the numbers released by ASCAP, not upon my interpretation and analysis of Pandora's public financials and metrics.]
So how does this $0.00008, or 8 cents per 1,000 plays compare the the value of performances on terrestrial radio? We’re going to need the back of a bigger napkin. That said, I’ve picked up a few tricks over the years, in an effort to simplify this problem.
The simple solution to the problem is to realize that the various PROs collect a total dollar amount in exchange for all the music performed by Terrestrial radio. Even simpler, the monies collected by the PROs in any year for every active radio listener, are in exchange for all of the music that listener hears during that year. The numbers below are rounded for the sake of simplicity.
Estimate of Total dollars collected from US Radio by ASCAP, BMI, and SESAC (2012)*
Total number of monthly, active radio listeners in the US (Arbitron, 2012)**
$385,000,000 / 240,000,000 = $1.60 collected per active listener.
Now we just have to ask ourselves, how many songs on the radio did that single, average listener experience in exchange for that $1.60?
Average weekly radio listener hours (RAB, 2012)
Weeks in a year
Songs experienced per hour (Radio tends to use more time each hour for Ads than Webcasting)
14.46 * 52 * 12 = 9023.4
Songs experienced by the average listener in a year (which can include listening to the same song more than once).
Now, we just divide the dollars collected per listener in 2012 by the number of songs the average listener experienced during that year.
$1.60 / 9023.4 = $0.00018, or 18 cents per 1000 plays.***
According to the back of this other napkin, PROs collects around $0.00018, or 18 cents per 1,000 plays, from Terrestrial Radio. Which would mean that for every 1000 plays roughly 2 of these cents would go towards the expenses of the PROs, leaving 8 cents for the publishers/administrators and 8 cents for the songwriters/composers.
For the record, and as noted earlier, when math works out like that, I kinda freak out.
For those who care, what follows are the Radio estimates if I use 15, 12, or 10 songs per hour.
15 songs per hour -> 14 cents per 1000 plays
12 songs per hour -> 18 cents per 1000 plays
10 songs per hour -> 21 cents per 1000 plays
In the end, and to repeat, I cannot answer the question of whether 8 cents per 1000 plays for the songwriters and composers is the truly “fair” amount for the use of these songs on Radio, whether over-the-Air or over-the-Internet.
In my opinion, and as I noted at the beginning of this post, arriving at a conclusion regarding the Fairness of Artist Royalties requires a far more nuanced (if not also *incredibly* nerdy) conversation than that occurring in the Fairness Debate around these royalties.
*This amount does not include the additional pool of monies paid by some Terrestrial Radio networks, stations, or programs to publishers, administrators, songwriters, and composers by way of direct license arrangements. As such the total amount paid by so-called Big Radio for the performance of musical works likely exceeds the amount paid to PROs. As a result, I may underestimate the value of a performance.
** I did not adjust this audience figure for that proportion which is Talk Radio since I do not know what portion of this audience, or weekly listening, is exclusively Talk, and what proportion is both Talk and Music. If I assume the so-called Talk Radio audience at any moment is exclusively Talk throughout a month or year, then the final royalty estimates would increase by up to 15% (the rough estimate of the Talk Radio audience). As a result, I may overestimate the value of a performance.
The combination of * (leading to a potential underestimate) and ** (leading to a potential overestimate) above might easily be a wash.
*** It would be mathematically implausible for me to reckon which proportion of songs on the radio are “ASCAP” songs, and in turn, re-calculate this figure based upon only that % and ASCAP’s revenue alone. But, it seems plausible that ASCAP’s proportion of total PRO collections, or 45-46%, is likely similar to that proportion of music on the radio that might be ascribed to ASCAP as the PRO. In the end, I find this issue a wash.