Record Labels Screw Pandora, Spotify, Artists, Consumers Every Day

NEW YORK ( TheStreet) -- In case I haven't given it away in my writing, I'm not a big fan of most Wall Street analysts. So, right off of the bat, you and I (assuming you're not a Wall Street analyst) have something in common. Though, I understand many of those cats are self-hating anyway.

Nevertheless, the ones who are good (and there are many dozens) are damn good. Tony Wible, who covers Netflix ( NFLX) for Janney Montgomery Scott. Great example. It's also tough not to like Richard Tullo, who covers Pandora ( P), among other stocks, for Albert Fried.

Watch Tullo's Tuesday appearance on CNBC, where he does two excellent things we do not see enough on television or read as much as we should in print and online.

Number one. Tullo tells CNBC, Listen, Pandora is a great company, but it has run like 65% off of its lows. We would be nuts not to take profits; as such, we'll advise our clients to do the same. See, cost basis absolutely DOES matter .

Number two. He places blame where it belongs in the dysfunctional Web streamer/music label/artist relationship. It's squarely on the music labels. Watch the video. Everything Tullo says nails it -- makes perfect sense -- particularly the part about Adele's rise via MySpace.

I hope Tullo gets called in to testify in front of Congress. Of course, they will not call me, but, if they did, I would be there in a heartbeat. To defend not only Pandora, but Spotify as well. Make no mistake, if you defend Internet radio companies, you are standing up for musicians and consumers of music. That puts you at odds with the record labels.

Pandora pays music royalties via a compulsory licensing scheme. That means the rate it pays is set by a regulatory agency. Spotify, like Netflix, uses direct licensing, meaning it negotiates directly with labels. Irrespective of who you think employs the better model, the labels ultimately give both companies the shaft.

As Pandora's fight plays out in Congress (it wants a more equitable royalty rate come 2015), Spotify should back its competitor. At day's end, compulsory licensing -- as structured today -- and direct licensing both stink. We need a fair rate across the board no matter how you choose to deliver your music.

The one thing few people talk about -- though Tullo brought it up with respect to Adele -- is that the streamers, particularly Pandora, have more leverage than the labels give them credit for.

Those optimistic music sales figures CNBC's Amanda Drury spoke of as she introduced Tullo? Thank Pandora, Spotify and other Internet radio entities for driving that action. And both companies provide a voice to thousands of artists (A) the music labels have no time for and (B) the traditional models of terrestrial and Sirius XM ( SIRI) never touch.

With reasonable cost structures, companies such as Pandora and Spotify can cut loose and innovate. And that will be good for musicians -- large and small -- as well as music lovers.

As I explained earlier this year, expect Pandora to eventually branch out into local concert promotion.

The company, however, can't juggle too many balls in the air at once with the royalty situation going forward undecided. Congress needs to deal with it this year, pre-emptively, so we can get on with business and bust the broken model the record labels so desperately wish to hold onto.

-- Written by Rocco Pendola in Santa Monica, Calif.
Rocco Pendola is TheStreet's Director of Social Media. Pendola's daily contributions to TheStreet frequently appear on CNBC and at various top online properties, such as Forbes.