The Tyranny of Free 

The internet radio service Pandora pitches artists an escalator to financial viability in the digital age, but it's just a staircase painted like an escalator — with the steps missing.

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Frank Portman hasn't had a steady day job since 1994, but he's navigated one struggling industry after another — first music, then books — to earn a living. And though the business of selling novels is notoriously beleaguered, he finds that it's now more financially viable than selling music.

Between 1986 and 2004, Portman fronted the East Bay pop punk band Mr. T Experience (MTX), which released nearly a dozen albums, and more singles and EPs. Then Portman shifted into young adult fiction. His acclaimed first novel, King Dork, appeared on an imprint of Random House in 2006. Andromeda Klein was released in 2009, and his third novel, King Dork Approximately, a follow-up to his debut, is due out this December.

Seated in a cafe in Oakland's Temescal district, a neighborhood in which he's lived for nearly three decades, Portman explained that he intends to release new music this year — but only to promote his book. "It's really unfortunate, but all of these market forces have combined to render music almost value-less," he explained.

MTX had enjoyed a booming era for CD sales — one that was bolstered especially for Portman by the superstar ascension of his regional peers and label-mates, Green Day. But then music consumption began shifting to the internet, and Portman recalled "you'd read articles by rock journalists hailing this brave new world of free content, with all of this free advertising for all of the bands."

At the time, Portman was skeptical. And not long after, the magazines paying those rock writers folded, as musicians began lamenting the collapse of their longstanding business model. A parade of web-based solutions for the music industry later ensued, each one accruing astronomical revenues, at least briefly, while largely failing to benefit the artists upon whom the services depend. In 2014, Portman observed, emerging artists belong to a generation that's conditioned to regard their creative output as financially worthless.

In 2012, Portman was already focused on a literary career when the official shuttering of his old label — Lookout! Records — thrust him back into the music business. The ownership of Mr. T. Experience's voluminous Lookout! catalog reverted to Portman. So, he started investigating how royalties work in the digital age.

He registered with SoundExchange, the federal government's designated collector of webcaster performance royalties, which is also responsible for distributing royalty payments to sound recording copyright owners and featured artists. Portman started receiving statements from SoundExchange with lists of his songs and their earnings in fractions of cents.

Brandishing one such statement in the cafe, Portman admitted that, like many musicians, he'd never scrutinized the statements very carefully, in part because the reported earnings on them were so meager. "The money amount just seems kind of disproportionate to the amount of paper," he said, wincing. "It's enough money that I wouldn't throw the check in the garbage — but it's pretty negligible."

Some simple calculations teased a few facts about his royalties. Most of them came from the Oakland-based internet radio service Pandora. As the featured artist and owner of the Mr. T Experience's catalog, Portman received $56.08 for about 45,000 plays on Pandora between March 1 and June 30 of this year. Pandora currently pays $0.0013 to SoundExchange for each time it streams one of the songs in Portman's catalog (Pandora pays another royalty, to songwriters and publishers, which Portman showed to be a pittance more.)

Portman acknowledged that touring would help his play count on Pandora, but more streams on the radio service still wouldn't amount to much. One million plays on Pandora would earn Portman less than $1,200. Put another way, if one physical album sale yields a gross income of $12, it would take Portman approximately 16,000 streams to earn the equivalent amount in performance royalties.

And Portman is fortunate to own his music. If it were still owned by a record label — as is the case for many artists — those small earnings would be halved.

Over the years, Pandora has vowed to help musicians such as Portman. But in reality, his puny earnings reflect the systematic, sustained, and, critics say, hypocritical campaign undertaken by Pandora to relieve its royalty obligation to artists. The company's founder, Tim Westergren, has often spoken dreamily of Pandora's mission to help indie artists and build a musician middle-class, but Pandora instead has steadily shown itself to be just the most recent member of a long lineage of opportunist companies that have siphoned money away from creators.

Pandora's growing interest in striking closed-door deals with music publishers has also undermined the Oakland company's much-touted Music Genome Project, a system that was supposed to maximize "discovery" — or to bring attention to lesser-known artists. In fact, as Pandora has striven in recent years to replicate broadcast radio's financial success, it has succumbed to the mass-pandering approach of traditional radio that it once condemned.

Westergren and other Pandora officials often argue that Pandora has pursued lower costs because it has yet to actually turn a profit. And although it's true that the company has never made more than it spends, Westergren's defense does not stand up to close scrutiny. Records show that, like many web companies, Pandora's top officials and privileged shareholders have been collecting millions from stock transactions despite Pandora's supposed unprofitability.

In short, Pandora has pitched artists on the idea that it represents an escalator to financial viability in the digital age, but, in truth, it's just a staircase painted like an escalator — with the steps missing.


With about 76 million active listeners, Pandora is the most prominent webcaster. In fact, the cafe where Portman and I did our interview was tuned to a Pandora station playing understated indie rock. Several blocks away in downtown Oakland, the company headquarters spreads across four floors of an office building that's wedged between banks and insurance companies. The only décor in the lobby is a New York Stock Exchange certificate from the company's initial public offering in 2011. During a recent visit, I watched an employee ride a scooter past an IPA beer tap in the break room.

In a different break room, a glowing floor-to-ceiling sign declares "RADIO," reflecting the simple self-image Pandora projects to the world: It's a one-to-one radio service, in which every listener gets a personalized station. According to Pandora's marketing department, if you input an artist or genre, algorithms interact with Pandora's proprietary Music Genome Project (a system that codifies songs according to hundreds of traits in order to present similar material), to populate an ongoing playlist of sonically similar music. Skip a song or give a song a "thumbs up" and those data points refine the selection more. Like with traditional radio, most listeners tune in for free and Pandora monetizes the traffic with advertising.

Pandora's campaign to keep the royalties it pays to musicians — quaintly referred to in company reports as "content acquisition costs" — low largely occurs on Capitol Hill, in court, and behind closed doors. The US Copyright Royalty Board, composed of three copyright royalty judges, convenes every five years to determine performance royalties for the webcasting industry. Pandora, however, has steadily removed itself from the royalty board's oversight and determinations.

The royalty board's statutory rate for most commercial webcasters in 2014 is a payment of $0.0023 for each song that is streamed. Under federal government rules, Pandora and other internet music streaming companies make their performance royalty payments to SoundExchange, a federal entity overseen by the royalty board. But as part of a special deal Pandora struck in 2009 with SoundExchange, the company currently only pays a much lower rate — $0.0013 — than the standard set by the royalty board.

Pandora's low-cost deal, however, is expiring. So as the royalty board has been preparing to set rates for the period of 2016 to 2020, Pandora has submitted written statements recommending industry-wide rates be lowered so they start at just $0.0011 per-stream in 2016. That would make performance royalties much less than they currently are. In fact, it would roll performance rates back to what the royalty board imposed on most commercial webcasters in 2007.

(Pandora paid a rate of $0.0011 in 2012 as part of its special deal with SoundExchange, too. That year, local musician Zoe Keating disclosed through her personal blog that, as the sound recording owner and featured artist, she earned less than a $1,000 from Pandora for almost one million plays on the radio service.)

Few artists, however, have publicly objected to Pandora's official royalty board filing. It appears that the complexity of copyright law and royalty regulations may be one of Pandora's greatest public relations assets. It allows the company to maintain a well-constructed public image, while engaging in business practices that largely go unnoticed.

David Lowery, a member of the indie-rock bands Cracker and Camper Van Beethoven, is one of few consistently outspoken critics of Pandora who's also an active musician. He blogs at TheTrichordist.com, and objects to the fact that webcasting is one of the very industries in which the monetary value of a product — a composition, a recording — isn't determined by the creators, but by the government, and increasingly a company: Pandora Media. He argues that the systems governing Pandora are effectively "agency captured" — capitulated to the influence of the industry they're supposed to regulate.

But there isn't just one agency. Pandora is contending not just with regulators, but the rest of the music industry as well. So how do digital royalties work?

Pandora pays two royalties for every song it streams, one for "performing" a particular recording and one for the recording's underlying composition — essentially, the lyrics and melody that would appear on sheet music. These two payments are typically referred to as performance royalties and songwriting royalties.

Performance rights organizations, or PROs, collect songwriting royalties. The largest PROs in the United States are ASCAP and BMI, which were established as competitors in the early twentieth century to collectively represent songwriters and publishers in the marketplace. The two most prominent publishers are tied to major record labels: Sony/ATV and Universal Music Publishing Group. ASCAP and BMI are regulated by "consent decrees" from the US Justice Department, which require PROs to offer their entire repertoire to any interested licensee at reasonable rates. If the licensee, such as Pandora, rejects an offer by a PRO, both parties end up in "rate court" to plead their case and receive a judicial determination. ASCAP currently receives 1.85 percent of Pandora's annual revenue, which the PRO distributes to its members.

The aforementioned SoundExchange disperses performance royalties to three parties: featured artists, who receive 45 percent; sound recording copyright owners (typically record labels), who receive 50 percent; and session musicians, who receive 5 percent. Webcasters and sound recording copyright owners can strike voluntary deals for alternative rates. In the absence of such agreements, the performance royalty determined by the royalty board goes into effect.

The royalty board's responsibility to approximate what a "willing buyer, willing seller" would agree on in a hypothetical free market when determining performance royalty rates is at the crux of the webcaster controversy. In the recently begun hearings (known as Web IV proceedings) to determine rates for 2016–2020, every company with a vested interest in lessening royalties — Spotify, Sirius, iHeart Radio, Pandora, and so on — intends to testify, along with industry participants such as SoundExchange. As noted, Pandora is seeking to reduce its royalty obligation to musicians. And it's not an isolated incident.


Jonathan Segel is a composer and bandmate of Lowery's in Camper Van Beethoven who, reeling from the recession, took a job at Pandora in 2009 in the company's user support department. In a blogpost last year, Segel detailed his story of disillusionment with the company and claimed that he was fired after repeatedly questioning Pandora's decision to run ads from anti-gay groups such as Speak Up University and Minnesotans for Marriage. Once optimistic about Pandora's potential benefits to musicians, Segel now realizes that the company has failed for years to live up to its professed ideals — and may have never done so.

In an interview, Segel remembered that "as far back as 2005, [Pandora CEO Westergren] sent emails to everybody and blogged about his attempts to get the performance royalty rate lowered... He already had a very double-speak method of talking about these things." Segel continued, "In retrospect, I see that his whole defense of lower royalties is like so many other tech companies — that it is somehow important to everybody for the company to be able to exist in the market."

In 2007, the royalty board initiated its periodic review of performance royalties and announced that the then-current rate of $0.0007 per-stream, which was enforced between 1998 and 2005, would incrementally rise from 2006 to 2010 (enforced retroactively to 2006). The new rates, starting at $0.0008 in 2006 and rising to $0.0019 in 2010, marked the first performance royalty rate increase for commercial webcasters since before the rise of Napster.

But Pandora cried foul. In posts on Pandora's website, Westergren called the increases "calamitous" and "the end of internet radio." He implored users to write their congressional representatives in protest, and then began lobbying Congress to underwrite Pandora's business model. In 2007, Pandora rallied behind the Internet Radio Equality Act, which would have changed Pandora's royalty payments to a revenue percentage model to lessen the expense. The act failed to gain traction on Capitol Hill, so Pandora backed the Webcaster Settlement Acts of 2008 and 2009, which empowered the company to negotiate a new royalty model directly with SoundExchange. It yielded what's known as the "PurePlay" system, and provided Pandora with per-stream performance royalty rates far below the royalty board's standards.

Westergren was thrilled. "The royalty crisis is over!" he wrote on Pandora's blog. Under the PurePlay agreement, Pandora secured a royalty rate for its non-subscription service that would increase by only $0.00017 over five years, from $0.00080 in 2006 to $0.00097 in 2010.

"Westergren makes it sound like Pandora has some inherent right to exist, to continue to exist, and to do so, royalties must be lowered," Segel told me. "Why should we care whether or not a company has a desire to exist, especially if it exists at the expense of another person's livelihood?"

But however pleased Pandora was with the PurePlay system, things appeared to sour after Pandora's initial public offering in 2011, which raised $235 million. In 2012, Westergren spoke on Capitol Hill in favor of the Internet Radio Fairness Act (IRFA), which sought to significantly decrease performance royalties and declaw the Copyright Royalty Board. The backlash from musicians — for once — was ferocious.

Prominent songwriters who wrote hits performed by pop stars such as Beyoncé and Christina Aguilera protested the meager earnings they had received from Pandora despite millions of plays on the radio service. More than 130 musicians, including three members of Pink Floyd, signed a letter condemning the IRFA, which the MusicFirst Coalition, a strident opponent of the bill, publicized in November 2012. The original IRFA stalled, but a revised version reappeared in early 2013.

For the second effort, Westergren sent an email to musicians in search of signatures on a petition he intended to present to Congress. Amid further backlash, Pink Floyd members continued their opposition that June, noting in a USA Today op-ed the gall of a letter requesting artist support for legislation that would undermine artist income. "...[A] business that exists to deliver music can't really complain that its biggest cost is music," the band wrote. After widespread condemnation, the Internet Radio Fairness Act foundered.

Though Pandora's congressional efforts harmed its public image, its number of users doubled in the two years leading up to 2013. And in 2012, Pandora executives, including Westergren and other company officers, cashed in, pocketing proceeds from the sale of $63 million worth of stock, records show.

According to Pandora's reported financial disclosures, company executives also collected tens of millions of dollars from stock in the first six months of this year. Also in 2014, the investment firm Crosslink Capital, which owned a one-fifth stake in the company at the time of its IPO in 2011, raked in $70 million from the sale of Pandora stock. Westergren, Pandora's founder and public face, reaped $2 million from the sale of company shares in August alone.

Pandora officials declined to be interviewed about the company's campaign to keep royalty payments low. When I made inquiries about the Web IV hearings, Pandora representatives offered an edited transcript of an interview with a stock analyst that made no mention of the value of musicians' work.

In a series of messages to listeners in October, Westergren and Pandora officials bragged about the launch of the Artist Marketing Platform, which gives artists access to data points such as the location of their listeners and which songs receive the most "thumbs up." Pandora contends that its platform will benefit musicians. But during the same month, Westergren's company quietly requested that the royalty board lower the amount of money Pandora pays to musicians.

Pandora officials frequently cite the fact that the company isn't traditionally profitable, yet it's clear to observers of capital in the tech industry that growth, which stimulates stock transactions, is often considered to be more important than traditional profits. And growth is where Pandora excels. The company's kindred spirit, Spotify — a platform for streaming songs and albums on demand (as opposed to Pandora's personalized playlists) that's embroiled in its own royalty controversy, most recently with megastar Taylor Swift — has explicitly stated its lack of concern about traditional profit.

Pandora and Spotify appear to represent the future of music listening. Paid digital downloads, including those of music purchased on iTunes, are falling out of style. In the first half of 2014, digital album sales fell by 11.6 percent and digital track sales fell by 13 percent. In the same period, streaming experienced an upswing of 42 percent. Because streaming services — companies that thrive on speculative capital and undermine royalties to generate it — are increasingly the preferred way to consume music, artists have reason to be worried.


In April 2011, ASCAP amended its rules in order to enable publishers to selectively withdraw their music catalogs from ASCAP's control. The move enabled Sony/ATV and Universal Music Publishing Group in 2012 to announce their intention to pull their catalogs from Pandora, while still allowing ASCAP to administer their catalogs elsewhere. However, the publishers and ASCAP did not tell Pandora which songs it should remove from its playlist, exposing the webcaster to potential copyright infringement if it streamed music that it was no longer licensed to play. In response, Pandora signed direct deals with the publishers for much higher royalty rates. The New York Post reported that Sony/ATV received a 25 percent higher rate than before through the direct deal.

The next year, New York District Court Judge Denise Cote's decision in a rate-setting trial chastised everyone. Pandora had sought to lower its songwriter royalty rate to ASCAP from 1.85 percent of revenue to 1.7 percent. Cote refused Pandora's request, but the judge also determined that Sony/ATV and UMPG could not partially opt out of ASCAP. Furthermore, the judge criticized ASCAP and the publishers for colluding against Pandora, having purposefully exposed the company to infringement liability for negotiation leverage.

Throughout this period, Pandora publicly positioned itself as a victim of bullying, coerced into dealing directly with major music publishers. But then after Judge Cote's decision, Pandora changed its tune and voluntarily agreed to deal directly with Universal Music Publishing Group in 2013 for undisclosed royalty terms on its repertoire represented by BMI. Then, Pandora struck a direct deal with BMG, a massive European publisher. Both deals circumvented the regulated performance rights organizations — just as Sony/ATV had done with its move to partially opt out of ASCAP. For industry observers, Pandora's decision to go forward with direct deals with Universal Music Publishing Group and BMG indicated that the undisclosed terms were to the webcaster's liking. But Pandora's exact incentive for striking the deals remains mysterious, to both the public and to the songwriters whose work the company bargained for.

In an interview, Chris Castle, an Austin-based attorney and frequent commentator on webcasting, was skeptical about direct deals. "Anything that undermines the compulsory license hurts artists," he stated. To Castle and many critics, there's little doubt that the non-transparent direct deals pursued by Pandora yield worse rates for artists. Furthermore, they jeopardize other protections provided for artists in the terms of compulsory licenses issued by regulated agencies.

On the surface, there appears to be little reason for a record label or publisher to strike direct deals with Pandora. Similarly, no royalty-seeking organization would accept lower rates than the ones imposed by regulators. Likewise, Pandora won't pay more than it's obligated to. Yet the parties must voluntarily agree to terms for direct deals to occur.

Castle offered a potential explanation for striking direct deals that evade regulation by SoundExchange. Because SoundExchange disperses the featured artist portion of performance royalties straight to musicians, he explained, dealing directly with Pandora could allow labels to receive that money instead — to pay off expenses incurred in music production, also known as recoupment. When the satellite radio service SiriusXM propositioned record labels with direct deals that entailed lower royalty rates, the company used the enticement of recoupment. And one arrangement made between Spotify and major labels reduces royalty obligations in exchange for company equity in Spotify — a setup that doesn't directly benefit musicians.

Another recent direct arrangement involving Pandora, announced in August, initially seemed puzzling as well. Merlin, a UK-based organization that advocates for independent record labels, announced a voluntary deal with Pandora and didn't disclose terms. When Pandora noted that Merlin represents 20,000-plus labels, but revealed little else about the deal, David Lowery suspected a smokescreen.

In early October, Lowery echoed Castle's suspicion of all direct deals, and said, "Well, Pandora doesn't have to disclose taking a little payment for more spins." He suspected that Pandora offered to play the songs of Merlin-represented labels with more frequency by manipulating its algorithm, in exchange for enjoying a lower per-stream rate. "That could explain these direct deals," Lowery said. (SoundExchange representatives did not respond to repeated requests for comment about Pandora and Merlin's deal or to clarify whether or not featured artists would still receive their royalty portion directly.)

Later that month, Pandora's disclosure of certain details regarding the Merlin deal in its Web IV filings validated Lowery and Castle's concerns. The filing revealed that Pandora was to pay a lower royalty rate in exchange for "steering" listeners toward the repertoire of participating labels. In other words, Pandora admitted accepting financial incentive to play songs by Merlin-represented labels more often. In written testimony that was made public after it was submitted to the royalty board, Pandora also redacted a portion of the testimony that revealed the total number of labels that had actually opted in to the Merlin arrangement (it only stated the involvement of three prominent labels: Merge, Beggar's, and Epitaph).

It's unclear what musicians signed to Merlin's participating labels stand to gain from receiving more plays at a lower rate. When I reached out to Mikal Cronin, a celebrated local artist who's signed to the Merlin participant Merge, for comment on the deal, he said that he hadn't heard of Merlin (Merge representatives declined a request for comment and Epitaph officials didn't respond to a request for comment). As Castle said, "Songwriters are condemned to be part of this structure... [Musicians] yet to be born are subject to the taking of their bargaining rights." And evidently they're subjected to it without notice.

No matter the number of participating labels, Pandora's Web IV filings reveal the Merlin deal's primary purpose. In arguing for reduced royalty rates in 2016, Pandora put forward its Merlin partnership as "compelling evidence of rates negotiated by a willing buyer and willing seller in a competitive market," which mimics the royalty board's guiding language for determining rates. If Pandora's recommendation for performance royalty rates — $0.0011 per stream, which is half of SoundExchange's recommendations in the same filings — is adopted by the royalty board, it will mean that the Merlin deal is being used as a benchmark to determine the performance royalty paid by all non-interactive commercial webcasters.


Pandora officials tend to frame the royalty discussion around a desire for "parity" across radio formats. In 2009, the company endorsed the Performance Rights Act, which would have obligated traditional broadcast radio to pay performance royalties to SoundExchange. Most industrialized countries require AM/FM radio to pay performance royalties, but the United States does not. As Westergren wrote in a letter at the time criticizing traditional radio's royalty model: "The system is fundamentally unfair ... to musical artists, who receive no compensation at all when their music is played on AM/FM radio." But nowadays, Pandora isn't criticizing the practices of traditional radio — it's mimicking them.

In the midst of Pandora's legal battle with ASCAP and BMI in 2012, the company bought a small, traditional (also known as "terrestrial") radio station, KXMZ, in Rapid City, South Dakota. In an op-ed published on TheHill.com, Pandora's vice president of business, Chris Harrison, highlighted the fact that webcasting competitor iHeart Radio enjoys lower songwriting royalties because its parent company, Clear Channel, is licensed by the FCC as a terrestrial broadcaster.

And earlier this year, Harrison stated in a C-SPAN interview: "Terrestrial broadcast radio pays less in royalties than Pandora does and owning a terrestrial radio station was a vehicle for us to take advantage of a better licensing regime." Parity, nowadays, means that Pandora seeks the advantages of broadcast radio that it once condemned.

Paying as little as possible for raw materials isn't an uncommon business model. Nor is it new for Pandora. A recent lawsuit filed against the company by 1960s rock group The Turtles brought attention to the fact that Pandora hasn't been paying performance royalties on material recorded before the Copyright Act of 1972, which determined that federal copyright would only apply to recordings made after February 15, 1972. The Turtles filed a similar suit against SiriusXM on the grounds that the satellite radio company violated state copyright law. The Turtles prevailed, and many observers, including Castle, expect the suit against Pandora to reach the same result. Pandora appears inclined not to pay royalties at all, regardless of how flimsy the legal justification is.

As Harrison reinforced on C-SPAN, "Pandora is radio." But like "parity," that's a snappy term with elastic meaning. Beyond royalty entitlement, Pandora's radio claim corresponds to its broader view of the music consumption ecosystem. The company has stated repeatedly that it does not consider Spotify a competitor. Rather, Spotify and Pandora regard each other as complementary services, providing all of the access to music a listener could ever need. That's discomfiting because both companies actively seek to devalue musicians' work. It's dismaying because the tech companies' desire to monopolize music consumption threatens to destroy music's culture.

As one Pandora representative described it to me, Spotify is the consumer's record store and collection, while Pandora is the consumer's radio dial. The typical mark-up in a traditional record store for new product rarely exceeds 25 percent. To retailers peddling, for instance, new clothing, where mark-ups are typically several hundred times the wholesale cost, that would not be acceptable. But until now, few profit-driven entrepreneurs have attempted to pad their bottom lines by situating themselves between music and consumers. In the 21st century, even as independent record stores endure unprecedented hardship, not a single shop proprietor has campaigned and lobbied Congress to lessen musician income.

That makes the future of music consumption envisioned by Pandora and Spotify — companies whose lack of passion is matched only by an abundance of stock value — rather grim, but reflective of broader economic trends toward inequity. Most harrowing is that every blow to artist royalties protects Pandora's market dominance and bolsters the earnings of its shareholders.

In an October blogpost, Westergren introduced Pandora's data sharing program with a story about his band driving more than 1,000 miles to play a club gig for fifteen people. "We had no platform to get large-scale exposure," he lamented, offering the Artist Marketing Program as a solution. But it doesn't take a web platform to see that driving from San Francisco to Telluride, Colorado for a club gig is a stupid idea. Westergren's backstory, in short, is becoming less persuasive. He's conflating the start-up world, where data is capital, with the real world, where creators extract value from their work.

Other disclosures have actually undermined aspects of Pandora's own cultivated image. For example, in response to IRFA criticism, Westergren disclosed the earnings of stars such as Drake and Lil Wayne, who he claimed were receiving millions of dollars. But rather than assuage the concerns of working musicians, the disclosure only underscored Pandora's discovery that hits appease listeners, which broadcast radio realized long ago. Like the radio old-guard Pandora claims to be disrupting, its programming capitulates increasingly to mass taste (or, just pedestrian taste: music to ignore while working) — and money.

That shift away from the Music Genome Project occurred to Segel as soon as he was hired. He learned that almost half of the music analysts were fired back in 2007. "They continued to play on [the Music Genome Project] as their important intellectual property, the thing that makes Pandora special, even though it's not used anymore," he said. Like its competitors, the company increasingly relies on tweaking algorithms to maximize listener hours (in company lingo, it's called "testing"), a programming ethos shared by your local top 40 station.

To observers like Castle and Lowery, Pandora's promise to "steer" listeners toward the repertoire of participating Merlin labels in exchange for reduced royalty rates sounds like "payola," or commercial bribery, meaning the practice of airing content for financial inducement without disclosure. As a webcaster, Pandora is exempt from FCC rules, which require broadcasters to disclose any material whose airing is paid for by an outside entity. However, since Pandora's purchase of the South Dakota station, it's been working through the FCC process to shift the station's broadcast license into Pandora's name.

And once it's an FCC-licensed broadcaster, Pandora's desire to be treated like radio might be fulfilled. Inviting payola prosecution ("Begging to be sued," as Castle put it), Pandora might find itself accused of the crimes that led to such a regulated industry to begin with.

So what to do? Ultimately, Pandora can't be expected to underwrite a musician middle class on its own. Even if the company paid Frank Portman three times as much for playing Mr. T Experience songs, it would still seem inadequate. Before working musicians can experience a longterm income upswing from internet listening, consumers must acknowledge how we're complicit in the devaluation of music. To ensure continued popularity and growth, Pandora and its ilk will keep hacking at royalties, and it's largely to grant consumers' wish: free music. 

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