NEW YORK (TheStreet) -- I read two articles about Pandora (P) over the weekend that stuck with me. One for how mind-numbingly horrible it is. Another because it provided a rare occasion where a writer actually presents a real understanding of not only what Pandora does, but the direction Internet radio heads.A couple blokes put together a piece for Motley Fool centered around two completely asinine -- and plainly false -- ideas:
- Pandora "has no intellectual property, leaving its business ripe for disruption"; and Music listeners love Pandora, but it "has few supporters on Wall Street."
Pandora's most important piece of intellectual property -- the Music Genome Project -- sets it apart. In this video conversation, Pandora Co-Founder and Chief Strategy Office Tim Westergren traces the history of how the MGP spawned Pandora and gives it its massive edge today: I feel like I have to hold people down, rough them up and threaten the safety of their families to get them to sit still long enough to comprehend the impact of the MGP. You don't just walk in and, overnight, disrupt the advantage the MGP gives Pandora in the areas of personalization and discovery or the head start it has building out sales infrastructure to gobble up an ever-increasing chunk of traditional radio's $14 billion to $16 billion advertising market. Not if you're Apple, not if you're Spotify. Pandora's continued growth and the growing number of entrants attempting to snag a piece of it only validates the company's model.
Greg Sandoval of The Verge wrote a nice piece -- Biting the hand that feeds you: Why are record labels fighting Pandora? -- where he articulates what Pandora means beyond merely spinning records:
For the record companies, it's like walking a tightrope. They must balance their desire to maximize profits while they avoid killing the new revenue stream in its infancy. If access models fail, the labels risk ending up back in a world where a single player like Apple holds all the powerIn other words, the music industry needs Pandora just as bad as -- or, dare I say, worse than -- Pandora needs them. Same goes for the rest of Internet radio. Sandoval continues:
Battling Pandora will be tricky for the music sector. Multiple music industry insiders have told The Verge that the labels consider Pandora a capable and communicative partner. Then there's the money. According to the RIAA (The Recording Industry Association of America) report and statements made by SoundExchange, the group that collects royalties from web radio services, Pandora contributes about 25 percent of all the money the labels receive from the access models. (Incidentally, SoundExchange's revenue was up 58 percent last year.) But this is precisely why the RIAA won't budge on the rates. Sources say that the labels believe web radio is bigger than Pandora and the market will expand soon. Apple is coming.Simply put, more competition, as Pandora has argued all along, is a good thing. It's good for Pandora because, with more Internet radio players, rates will likely come down. And it's good for musicians because, even if rates do come down, there will be that many more outlets playing their songs. So, no, Pandora absolutely is not screwed. It's positioned in the driver's seat to a much greater extent than most observers give it credit for. Follow @rocco_thestreet -- Written by Rocco Pendola in Santa Monica, Calif.