Tim Westergren of Pandora and John Simpson of SoundExchange face off in live debate

I was fortunate enough last night to have caught the live debate on Attack of the Show between Tim Westergren, founder of Pandora, and John Simpson, executive director of SoundExchange. The debate of course was about the fairness of the Copyright Ruling Board's ruling, and the future of internet radio.

Before I get into the analysis of what was said, I'll give you my basic impressions: Both speakers came off as civil, and articulate, and rarely spoke over each other or raised their voices. The moderator, Kevin Pereira, also did a good job of presenting questions from both sides (including questions solicited over the web from viewers). It's funny to note that most debates on CNN and other major media outlets are rarely this civil, so it's a breath of fresh air to hear a debate and then be able to weigh the arguments themselves as opposed to getting caught up in a juvenile shout-fest.

Now onto what was said, and my analysis:
Westergren framed the debate around the question of parity. He stated that satellite radio only pays 5% of their revenues to SoundExchange, but Pandora would have to pay at least %60 to %70 of their revenues. Simpson did not directly rebut this (and seemed to agree, but pointed out that satellite broadcasters would have to pay a larger percentage as their listenership increased), but brought up the fact that the judges involved in making the decision had poured over the financial records of numerous internet broadcasters, but due to the sensitive nature of these finances were obliged to keep this analysis protected, and therefore it's impossible to truly debate the numbers. I will repeat this in case you missed it: According to SoundExchange, the royalty payments that will possibly shut down internet radio are based on information that is a secret. While I'm sure the internet radio stations that were being scrutinized don't want their books exposed, would it not be possible to talk about numbers in aggregate? If there is no transparency to the underlying numbers, how can we be sure that the judges know how to correctly interpret them? This is disturbing, but also makes me wonder if the rest of the world would ever go along with this legislation based on current perceptions surrounding the Bush administration.

That notwithstanding, Simpson did bring up the valid point that internet radio plays fewer commercials, and overall simply has a lower revenue stream, so even though the percentages are higher, the overall revenue would be more on par. Okay, I think this is probably the best argument put forth, and does have merit. To be sure, a lot of internet radio stations are being run by enthusiasts with a genuine love of music who aren't looking to build the next media empire. In the eyes of RIAA, these folks are taking a free ride and must pay up. Okay, that's fine, but in order to fairly assess what the rates should be, shouldn't we have all the numbers on the table in some form?!? But of course that's all a secret, and we're back to square one.

When Simpson was asked about terrestrial radio's ridiculously low royalty payments, compared to both satellite radio and internet radio, Simpson agreed that they too should be taken to task, and should start paying their fair share. Uh huh. Well, I guess we'll just have to wait and see what secret numbers come up. Oh, and don't forget that terrestrial radio has been around longer than the recording industry, and likely has some pretty strong legal precedents. Folks: It ain't gonna happen.

On the topic of artist payments, Westergren pointed out that Pandora plays music from over 35,000 artists, of which 34,000 of those artists don't get airplay on mainstream terrestrial radio. Simpson retorted by pointing out that SoundExchange pays over 20,000 members across 2,500 labels. Ahh, now we get some numbers. So consider this: At the very best case, all of those 20,000 artists are on Pandora, and are getting some kind of compensation. What about the other 15,000 artists on Pandora that aren't? This just tells me that SoundExchange is not scaling to meet the needs of the industry. But I digress. The main point Westergren was making, is that for the true indie artists out there, internet radio is the only viable medium for getting heard, and I think that's hard to counter. Think about it: Satellite radio currently has about 100 stations. I figure FM radio can fit in 30 stations, and AM radio, another 20 stations. Given that we'll be going back to at most 200 stations, and realistically something like 20 stations to choose from, a major revenue stream for indie artists will be yanked away.

Which brings me to another point that Simpson made. Namely, Simpson stated that terrestrial radio, satellite radio, and internet radio are all different businesses and should therefore be treated differently. This is a pure rubbish argument which I'll address in more detail in a later post.

I was hoping to come away with a better understanding of the rationale behind the Copyright Ruling Board's payment rates, and certainly feel I'm better informed. However, what I learned about the secrecy of the process disturbed me. That said, I'm incredulous that this really is the case, so I'm going to keep digging.

I'll keep you posted.
-Neil.