Really interesting speculation about who might be the best buyer of Pandora.
Luis Antonio Perez
11

There’s a lot of questions in there — and all of them good.

Pandora operates under a statutory framework, which lays out exactly what they can and can’t do — and all music companies and artists are bound by it. Thus, Adele or Taylor Swift can’t pull their music from Pandora like they can from Spotify. The cost of doing this is a lack of interactivity found on Spotify, Tidal etc…. Those guys have separate deals with labels — and they pay more, as a % of revenue than Pandora does. However, they charge a lot more ($10 per month versus free with advertising). The same goes for Sirius/XM. They pay a lot less in terms of a % of revenue — but their revenue is higher.

So who can actually pay the royalties demanded by the music providers?

Currently no one.

I view the situation like I view the airlines. these companies rely on pilots, mechanics, etc…to operate. And all of those workers are unionized. It is the job of the union head to extract every last dollar available for their constituents. On the other hand the airlines must try to extract every last dollar for their shareholders. that is the fiduciary duty of each party. And interestingly, both sides must strike a deal where the airline survives — and hopefully thrives. Without the airline, there is no union, there are no jobs — and without people to work, there is no airline.

So every few years there are negotiations based on where the business is at that point, and everyone comes to a compromise.

That’s where we are in music. Every few years Spotify or Pandora talks with the providers of music (the artists, through their representatives) and they come to a compromise position on what % of the business the artists and their representatives will own. Sometimes it is a good deal for Pandora, and sometimes it is a god deal for the artists — but any way you slice it — if you get a good deal now — the other side will be dug in next time.

Which is why it is so important to take what you have as an asset (as you correctly point out Pandora has a superior playlist engine powered by over 10B separate pieces of data) and move to a business model where you are helping the artists do a better job touring or selling tickets.

There’s a reason terrestrial radio pays no royalties — and that is because it has long been thought that radio sells music — so any advertising on the radio through free play made sense. Heck — artists even paid the radio stations to play music (the payola days).

So when artists complain and scream about Pandora and Spotify not paying them anything — or not enough — I always find it hypocritical. Where are the complaints about terrestrial? Well, there are none — and it is the fault of the digital marketplace for not pairing immediately and strongly with the artists to show how they too can help the artists career along.

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