Recording Industry Lobbyists Accuse Pandora Of Deliberately Not Selling Ads To Plead Poverty To Congress

Overhype

from the right,-and-the-labels-just-need-to-sell-more-albums dept

I’m always amazed at how copyright maximalists from the entertainment industry insist that no one can comment on their own businesses unless they’re “in it” while freely commenting on other businesses they clearly know nothing about. Here’s the latest example. The musicFIRST coalition, which is basically a lobbying operation set up by a few of the big legacy players in the recording industry (including the RIAA, A2IM and SoundExchange) in order to push for ever higher royalties for music, has been fighting hard against any effort to create royalties for internet companies that would allow those companies to survive. Like the Golden Goose, the labels have decided that if anyone online is making money, it’s best to squeeze as much of it out of them as possible until they’re dead, rather than allowing them to grow and to provide sustainable revenue back to the industry.

But their latest blog post really takes public cluelessness to new and impressive levels. It’s a response to the news that Pandora’s listener base has been growing. That should be celebrated, but, as Pandora has been pointing out for ages, thanks to the crazy high royalty rates that it has to pay SoundExchange (which are many times the rates of satellite radio and infinitely larger than terrestrial radio, since terrestrial radio has an exemption from performance royalties) it is close to impossible for Pandora to ever be profitable. Even worse (for musicians, the industry and the public) these crazy high rates means a lot less competition, fewer new authorized services and a smaller market overall. Pandora has been seeking more reasonable rates that would actually allow it to provide more services and to grow the overall pie even more by adding more value. However, so far, that’s been cost-prohibitive given how much goes out the door to SoundExchange.

So, along comes MusicFIRST with the “solution” to all of Pandora’s profitability problems: sell more ads. No, that’s not a joke. They seriously seem to think that Pandora’s problem is that it has chosen to take on less revenue and that all it has to do is turn the knob up and sell more ads:

As economist Jeff Eisenach testified last year regarding Pandora royalties, “the ratio of Pandora’s content costs to its revenues is within Pandora’s control: To raise its revenues, it need only choose to sell additional advertising” or find other ways to cash in on its popular and successful product.

Pandora is choosing to limit revenues for now by keeping advertising low and attracting customers to its free service tier…. It’s no reason to plead poverty in the face of massive audience growth and “better than expected” earnings reports.

As someone who relies on advertising for a portion of my income, I wish musicFIRST had just told me all along that the fact that ad rates are so low and that fill rates are so dismal on advertising all across the internet is because I just wasn’t trying enough and that I’d purposely been “limiting revenues.” Why don’t we just flip that one around? Perhaps the reason that the major labels and SoundExchange have been making so little money is that they’re not selling enough. All they need to do is sell more and all their problems are solved. No need to go plead poverty to Congress and demand a jacking up of rates, since — by their own logic — they just need to sell more, and clearly, that’s easy. If they’re not selling more, it’s because they’ve decided to limit revenue.

Stories like this make you wonder if anyone actually takes musicFIRST seriously.

Separately, musicFIRST trots out the lamest trope in the book in the attacks on Pandora: focusing on the value of the company and the equity its founders hold. Only someone who is deliberately misleading or completely clueless on basic financial issues would equate a company’s valuation with revenue. The two are wholly different beasts. And yet, these lobbyists pretend that the equity that Pandora execs hold somehow is taken unfairly from artists. That, of course, makes no sense if you actually understand the difference between equity and revenue. Any artist could have had the same equity if they had built Pandora. They didn’t, so they don’t.

Filed Under: business models, interactive streaming radio, licensing, lobbyists, performance rights, royalties, selling ads
Companies: musicfirst, pandora, riaa, soundexchange