Should Pandora and Spotify Merge? (Maybe Even at SXSW)

NEW YORK (TheStreet) -- I'm all over Pandora's (P) pivotal Q4 earnings report and Apple's (AAPL) attempt to fix a stagnant iTunes.

Tim Cook should end the charade and take out Spotify. That's the obvious call here, as opposed to banging your head against the wall negotiating with the self-serving music industry.

With that in mind -- and with Pandora quite possibly silencing embarrassed bears once and for all -- it might seem like a strange time to bring this up, but what about the notion of a Spotify/Pandora merger?

Here's my thinking. Characterize most of it as thinking out loud.

There's no question Pandora crushed the quarter. Maybe not from a numbers standpoint, but its performance in mobile and, maybe more importantly, its continued hijacking of traditional radio advertising dollars, sends the message loud and clear -- we're for real.

But, there's still the music royalty issue to deal with. A few months ago, I felt like Pandora needed to be less aggressive in its fight to score an equitable royalty structure for Internet radio. Scratch that -- it's time to strike while the iron is hot and the doubters look like fools.

Of course, Pandora and Spotify are, by and large, completely different. Pandora is radio -- redefined, but still radio. That's it. You turn it on and receive the best personalized radio experience alongside discovery. Pandora sits side-by-side and, in most major markets, tops traditional radio stations in the ratings.

Spotify is everything iTunes should be, but isn't. Simple as that. While they're competitive, Pandora and Spotify are absolutely complementary. Both can and will endure over the long haul.

Pandora pays for most of its music through a regulated arrangement with the Copyright Royalty Board, also known as "compulsory licensing."

Spotify uses direct licensing, much like the way Netflix (NFLX) buys its content. In other words, Spotify negotiates separate deals with music labels, etc.

Both models -- from a cost standpoint -- stink.

That's why it might be time for Pandora and Spotify to bury their subtle hatchet and talk partnership, if not merger.

Both companies -- though to a greater extent, Pandora -- have gained and continue to gain serious leverage. There's no question the content owners have control, simply because they own and control the content. They have done an excellent, even if inaccurate, job of controlling the conversation.

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