Report: Different Pay, Different Play At Pandora

Pandora recently signed a deal with a company called Merlin, a consortium of independent record labels that's adding another factor to the algorithm: money.

Performers get paid a small royalty each time one of their songs is played on Internet radio, at a rate set by a Royalty Court at the Library of Congress. But Internet radio and labels can strike individual deals, as Pandora did with Merlin. The Internet service will recommend Merlin artists over those not affiliated with the consortium in exchange for paying Merlin's musicians a lower royalty rate.

Merlin artists get more spins, and Pandora winds up paying less in royalties than it would if were giving those same spins to non-Merlin artists. Plus, consortium labels will get to suggest favorite tracks.

According to mprnews.org, the deal has raised eyebrows with musicians such as David Lowery, a founder of the bands Cracker and Camper Van Beethoven who also teaches in the music-business program at the University of Georgia.

"They're giving a discount in exchange for airplay," Lowery says, "so essentially you're being advertised to without you knowing it."

Jim Burger, a copyright lawyer and adjunct professor at Georgetown University, says this kind of deal would receive legal scrutiny if it were taking place on old-fashioned radio.

The statute to which Burger refers was passed by Congress in 1960 after hearings in which members expressed outrage when they learned that DJs were being paid by record labels to play certain songs.

The statute outlaws what came to be called payola, and it only applies to terrestrial radio. Pandora CEO Brian McAndrews says there's no comparison between that and what his company is doing.

"Payola is where record labels pay radio stations to get airplay," McAndrews says, "and the opposite is what happens today. As Pandora, we pay the record labels and the artist to allow airplay. So it's completely different."

But Lowery says he worries that the Pandora-Merlin deal could shut out artists and labels that can't afford to cut deals for extra play.

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