How Much Does Pandora Pay to Play Top Artists? A Lot.

In a recent blog post by Tim Westergren, the founder of Pandora, the founder outlines just how much the company is paying artists to license their music so the personalized Internet radio service can play their music. The licensing fees, as you may imagine are incredibly expensive. For the right to play popular artists such as Drake and Lil Wayne, it costs the company $3 million per year for each of them. Other popular artists such as Coldplay, Adele, and Wiz Khalifa each cost Pandora $1 million per year.

But it’s not just super popular artists who are raking in some serious cash from Pandora, there are thousands of artists who Pandora owes thousands of dollars to every year. Over 2,000 artists individually receive $10,000 per year from Pandora, and more than 800 artists receive over $50,000. If we simply look at the artists who receive $10,000 per year, that is already costing Pandora $20 million — and that’s just the tip of the iceberg. No wonder Pandora has yet to turn a profit.

Here is the kicker though. According to Russ Crupnick, senior vice president of industry analysis for The NPD Group, citing the annual Music Acquisition Monitor study, states, “Overall music purchasing was down in the last year, while the average Pandora listener purchased 29% more music during the second quarter of 2012 compared with last year. Additionally, Pandora listeners’ music acquisition came increasingly from legal purchases, while non-listeners showed a decline.”

So while Pandora is helping the music industry by paying its fees and getting more people to purchase music legally, the music industry isn’t helping Pandora create a sustainable business that would actually benefit the artists long-term.

The problem with the insane fees set by the music industry is that despite Pandora’s growth in the past year, they’re still losing money.

The music industry is broken and has been for a very long time.

There’s no doubt that illegal music downloading seriously scared the music executives, but the truth is music is still around and going strong. New artists are coming into the spotlight all the time and pop stars are still selling millions of albums. Which brings me the my point, not only are the current licensing fees unfair, they’re also short-sighted. Consumers continue to show their interest in listening to music on Pandora and other streaming services, but if these companies can’t turn a profit, they won’t be around for much longer and new entrants into this industry will be few and far between.

One thing is clear though, if this industry is to survive, music licensing fees need to be fair for all parties.