- Backtrack on the Internet Radio Fairness Act considerably.
- Push the annual subscription option, but find some way to incentivize it.
- Cultivate additional revenue streams immediately.
This is the bill working its way through Congress that would put Pandora's royalty rate more in line with Sirius XM ( SIRI) satellite radio, cable television and other entities/mediums that license music. Right now, Pandora pays anywhere from roughly 50% to 65% of revenue in royalties, depending on the quarter. For example, it pays about six times more than Sirius XM. The artists who decided to speak out against the bill are major names. We're talking everybody from Katy Perry to Rush to Billy Joel to Blondie to Jackson Brown to Alabama to Bryan Adams to KISS to Sheryl Crow to Vince Gill to Maroon 5 to The Pointer Sisters to ... you get the point. It's a cross-section of the world's most popular musicians. If anybody is going to win a popularity contest with the public or influence a Congressperson, it's the people with this type of star power, not Pandora. Simply stated, right or wrong in its legislative quest, Pandora absolutely cannot get itself into a public relations battle with singers and songwriters from every end of the cultural spectrum. Big Bad Voodoo Daddy signed this thing alongside Amy Grant. The freaking Doors show up on the list. Jimmy Buffett, man. Even Warren Buffett couldn't effectively defend against this. Let me be clear -- I see Pandora's point. In fact, I still side with it on the issue. Opposition aside, it's on the wrong end of a raw deal. The system makes no sense. Pandora is getting screwed. That no longer matters. Pandora can't win now. Clear Channel, by the way, also supports the bill. But nobody cares because the company pays relatively scant royalties. On the terrestrial radio side, it has, historically, paid nothing. In fact, since the launch of its digital product, iHeart Radio, Clear Channel pays more than it previously had. Nutshell -- Clear Channel CEO Bob Pittman is a slick dude. He supported the bill, in part, because he knew his company had nothing to lose and everything to gain, given that the future of radio is on the Internet.
So, now what? What should Pandora do to rectify the situation?
- Ask your supporters in the House to draft a compromise bill.
- Apologize for the blog post I referenced in the above-mentioned October article where Tim Westergren calls out how much Pandora pays in royalties to SoundExchange and specific artists. That's where the trouble started. Obviously, Pandora pushed its luck and upset roughly 125 major players.
- Offer listeners one-year subscriptions to Pandora for half price. Come up with some sort of lifetime option. Pandora One, the platform's subscription option, is consistently one of the top in-app purchases in Apple's (AAPL) App Store. Drive that thing like you stole it.
- Increase revenue. Don't run more ads. That's always been a bad idea. Find a way to be an e-commerce player. And, as I suggested months ago, side with artists; become an independent concert promoter staging and selling tickets to exclusive Pandora listener-only concerts across the country.