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Pandora Crashes, But Is It Dead?

Stocks in this article: P

Mobile revenue was up 112% year-over-year to $73 million for Q3.

Listener hours continue to soar, as Pandora now commands 7.09% share of all radio listening, up from 4.32% the same time last year.

Pandora and Music Royalties

The fly in the ointment -- content acquisition costs. For Q3 -- and all of this data is available at Pandora's investor relations Web site -- Pandora paid close to $66 million in music royalties. That's roughly 55% of revenue.

I have published several articles on the fight that's happening in Congress, including, most recently Absolutely Horrible News For Pandora and Spotify Has The Bad Business Model, Not Pandora.

I will continue to write about it, but it takes more than one article or a sound bite to make sense of such a historically-rooted, emotionally-charged and complex issue. It needs to be a conversation. One that requires patience and is comfortable calling it a night with unanswered questions lingering.

I will tell you this -- 99% of what gets reported about Pandora, Spotify and music royalties is either wrong or flat irrelevant.

This entire thing comes down to a fundamental disagreement between the music industry and Pandora. I require an entire weekend to sit and write one long article fleshing the whole thing out, but know this -- the music industry does not have the interests of any party other than itself (including the artists it "represents") in mind.

This comes down to a fight between compulsory music licenses (the route Pandora takes) and direct negotiation with the labels (Spotify).

Thanks to a dearth of in-depth reporting and an abundance of noise, nobody knows what the hell they're talking about.

Compulsory licenses are better for artists and they're better for the music listener.

Under a compulsory scheme, Internet radio players such as Pandora do not need permission from a label to play its music. Pandora can choose from the entire universe as long as it abides by some limitations and pays what are now exorbitant royalties to SoundExchange, which splits the cash with artists.

Pandora does not need to negotiate short-term Netflix (NFLX - Get Report)-type deals with the labels like Spotify does. It does not have to chase down every small label and artists in the country and cut a deal to play their music. That's not possible, which explains why Pandora has incredible variety and, relatively speaking, Spotify has none.

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