Pandora Could Die If It Doesn't Start Listening

NEW YORK (TheStreet) -- Pandora (P) has no choice but to aggressively shift the prevailing discussion surrounding Internet radio. Shift it away from royalties.

It's not that royalties aren't important. They are. But they're merely part of what should be -- but, at least in the broad public sphere of dichotomous debate, isn't -- a much larger discussion.

Pandora does not dominate the conversation on royalties. It probably never will. Right or wrong, win or lose (as much as I hate succumbing to the dichotomy) Pandora cannot risk staking its future on an emotionally-charged debate that takes on the worst characteristics of bad political theatre.

Save a couple exceptions, I agree with the moves Pandora has made in the royalty fight. I don't blame the company for being aggressive; however, it must do better now. That means distancing itself -- at least publicly -- as much as it can from a black and white argument that turns, in some parts, vicious.
it's a useful dream that makes quite an entertaining show and not much more/up against and for, either/or
-- Elliott Smith, "Either/Or"

It's going to be difficult to overcome level-headedness such as this from Pink Floyd in a Monday morning USA Today OpEd where band members take Pandora to task for how it fights the royalty fight:
We're not saying that the music business is perfect or that there is no room to compromise. Artists would gladly work with Pandora to end AM/FM's radio exemption from paying any musician royalties - a loophole that hurts artists and digital radio alike.
Other changes and compromises may be possible as well. The open letter to Pandora that we signed last year said, "Lets work this out as partners" and that's what we should do. But tricking artists into signing a confusing petition without explaining what they are really being asked to support only poisons the well.

That's what I have been calling for -- collaboration outside of open letters, lobbying, lawsuits, motions and strategic legal loopholes. Sit down at the table and work out sane, logical and sustainable deals. Force positive change in the tenor of the conversation.

Pandora makes an unconvincing argument when it says lower royalties will urge more players to enter Internet radio, thereby increasing airplay and exposure for bands. That may or may not happen, but it's a tough point to push in an era where company after company -- big and small -- enters the space under the present digital royalty schemes.

The worst part of it all -- and I have voiced this opinion directly to the company -- Pandora does not have to take one route, the contentious route. It can't possibly prove that lower royalties will result in a larger pie of digital royalties, but it can prove to the music industry -- like nobody ever has before -- what a great partner it is and can be.

Harnessing its platforms in ways Apple ( AAPL) likely will not. Apple pays publishers 10 percent, but will it leverage its listening data to help the music industry go the extra mile in the digital age?

Highly unlikely.

Consider this tie-in.

Earlier this year, Pando Daily wrote about a small startup called Ticketfly.

Pay attention to the lowdown on the company because it absolutely applies to where Pandora genuinely intends to go, but needs to go -- in force -- now:
Ticketfly has built a reputation for itself as an ally to small- and medium-sized venue owners by offering technology tools that go well beyond ticket sales. The three-year-old startup leveraged the popularity of its social marketing and publishing tools to grow its client base by 128 percent in 2012 to 822 event promoters and venues, across 44 US states ...
(In May, Ticketfly released) its Fanbase customer analytics suite that (allows) venues and promoters to identify, engage, and reward their best customers. The genesis for this new product was the realization that just 7 percent of consumers accounted for 24 percent of ticket orders in 2012, and 30 percent of ticket revenue ...
Fanbase relies on a proprietary ranking algorithm to combine a dozen factors including attendance, purchase history, and social sharing data to create a dynamic ranking of top fans on a per venue, event, genre, and individual performer basis. With this data, promoters can better target and engage their most valuable customers.
This data can be valuable to create buzz ahead of an upcoming event through exclusive pre-sales or premium seating and merchandise rewards promotions. At the same time, by knowing fan preferences and engagement levels venues can more effectively liquidate otherwise difficult to move ticket inventory - all while rewarding loyalty ...

This is all important and groundbreaking (not to mention a threat to Live Nation's ( LYV) Ticketmaster), but here's the most important part as it relates to Pandora. Consider what the box office manager of two small clubs in Philadelphia and Wilmington, Delaware, has to say about how Ticketfly can now help them book shows night after night:
Despite this schedule (nearly 1,000 events per year), the company's event promotions and marketing team consists of just four full time individuals. Prior to joining Ticketfly, the team was "grasping in the dark," according to box office manager Sarah Marasco, particularly when hosting a performer for the first time, heaven forbid venturing into a new genre.

This ties right into the issue of "pay for play" I wrote about last month in Pandora Isn't the Enemy, the Music Industry Is, Part 2. But, beyond that, it's about finding new ways to support the broad music industry at various levels.

Pandora can do what Ticketfly does for venues with artists to further prevent clubs from "grasping in the dark" when they book shows. Pandora is in the early stages of doing this with its artist dashboard product. But, again, it needs to step up the intensity of its game.

Pandora can create a groundswell of support for its efforts on the royalty front -- and prove that a more equitable royalty structure for digital radio can and will benefit the music industry beyond the peanuts most musicians see from royalties -- by showing not telling everybody what a great partner it can be.

We're already seeing flashes of what it can do.

This is the power of Pandora:
Pandora Presents where it packs a venue with loyal Pandora listeners and fans of Cincinnati-based Walk The Moon.
Pandora Premieres which gives listeners access to new albums one week prior to their official release, helping drive sales.

Last week I discovered Bronze Radio Return on Pandora Premieres. If you're into Mumford & Sons or the Lumineers, you'll love these guys. And, from what I can tell, Bronze Radio Return loves Pandora.

I sat with my guitar instructor last week -- he plays in a band called Freefall Rescue -- showing him his band's Pandora artist page. Full disclosure: I alerted Pandora to Freefall Rescue's new EP, which it now spins. I rarely call in favors, but I did this time because these guys deserve it and, more importantly, they have no idea how to navigate the system.

As I showed Carlos the artist page, I explained what Pandora can do for bands like it if it only unleashed its promotional power as a partner. It can take an unknown act with a tiny following, such as Freefall Rescue, and pair it on a bill with a better-established group -- say, Golden State -- and put on a show where music fans judge Freefall Rescue on the merits of the work it does, without the distraction of the stressful baggage that goes along with needing to "bring people out" under the unjust pay-for-play sweatshop-like system.

The articles I link to in this piece add context and specifics to the point I am making here. I will continue to evolve these arguments. Because this is critically important on so many levels.

As it pertains to Pandora's future, it's really about survival. Maybe Pandora thinks it can't afford to go all-in on promoting the music industry -- from major labels to the independent producers that dominate the streaming radio service -- under its present royalty burden. That's a valid concern; however, it's quite tenuous.

Pandora currently spends considerable amounts of money on a fight there's a good chance it will lose. The more I cover this story -- and I am getting in deeper by the day -- the more I feel like Pandora stands a better chance mortgaging its future by going all-in on the promotional front, not the royalty fight.

Because, after all, how to promote and generate new, robust lines of revenue for the music industry and all artists in the digital age is a much more important issue than royalties for most labels and acts. Pandora needs to make that point with as much force, if not more, as it makes its royalty arguments. At present, it's not doing a good enough job.

-- 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.

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