Things Keep Getting Worse For Pandora

NEW YORK (TheStreet) -- If you have a short attention span or prefer sound bytes over substance, it's difficult to have a true understanding of the royalty dustup that features a good chunk of the music industry against Pandora (P).

In this article -- and in another I will publish shortly thereafter -- I do my best to boil the matter down to what I consider -- based not merely on my whims, but on conversations with people close to the situation -- the most meaningful aspects of this entire mess.

First, some perspective.

How can I say things keep getting worse for Pandora?

The stock is up roughly 44 percent over the last year, about 59 percent year-to-date. The business, by all accounts (even if constrained by high content costs), hums along. Pandora has penetrated the automobile harder and faster than anything since AM/FM radio. Tons of listeners. Incredible consumer loyalty. It's crushing broadcast radio, ratings-wise, while poaching sales people and ad revenue from that industry. Increased competition doesn't stunt this growth or success; in fact, new entrants, most recently Apple ( AAPL), only validate Pandora's approach.

However, because of what Pandora is up against, reality might not matter. I understand Pandora's business -- and its opportunity -- quite well. I do my best to correct the errors other media personalities make when they cover Pandora and the broader space. The pressure I put on Pandora does not come from the perspective of the local hack who writes the latest in a string of "Pandora killer" articles. Not at all.

All else equal, Pandora should win this fight because, at day's end, I believe a) its model works and can continue to dominate and b) it has the best interests of musicians -- major label and indie -- at heart. But that doesn't matter. It's fighting a battle it probably cannot win way too aggressively for its own good. It's not like I just came to this conclusion.

Kick back to November 16, 2012 and Absolutely Devastating News for Pandora.

On the heels of Tim Westergren's decision to blog about how much Pandora pays artists and musicFIRST's open letter opposing the Internet Radio Fairness Act (IFRA) -- signed by 125 big-name musicians -- I expressed concern:
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.

At the time I suggested Pandora do three things:
1. Backtrack on the Internet Radio Fairness Act considerably.
2. Push the annual subscription option, but find some way to incentivize it.
3. Cultivate additional revenue streams immediately.

On the first point, it backtracked, sort of, by default, because IFRA is no longer a bill. However it has not given up the fight. While I don't think it should, I do think Pandora must take a different approach immediately. Find color and context for that statement in: Pandora Absolutely Must Do Better Now Pandora Could Die If It Doesn't Start Listening

On the second point, Pandora listened (even if not in direct response to my suggestion). The 40-hour per month mobile listening cap it instituted several months ago did what it was intended to do, lowering content costs marginally and growing subscription metrics massively.

On point three, subscription revenue aside, Pandora hasn't done much. And that's a problem, not merely from a business standpoint, but a strategic one in the royalty war.

And the fierce opposition just keeps coming ... relentlessly.

On Monday, USA Today published an OpEd written by members of Pink Floyd. They ripped Pandora. I summarize it, mid-page, here. On Tuesday, Martha Reeves ( who doesn't love Martha Reeves!) joined the chorus. As has become custom, musicFIRST seized the opportunity:
Martha Reeves is a musical icon and a social justice hero - she speaks on these issues with the authority of someone who has lived them, who has truly been in the trenches. She knows how hard things can be for artists, but as she writes today, she also hasn't given up hope ...

That's what Pandora is up against. Right, wrong or somewhere in between on the core arguments -- that's neither here nor there. No matter how righteous Pandora is (and, I believe the company is decent and virtuous) or thinks it is, the music industry can chew it up and spit it out -- even if out of spite -- if it wants to.

And, for all of its shortcomings, the music industry has valid points Pandora has failed to address. I tied these two things together -- the music industry's shortcomings and Pandora's failure to address -- in an article that will follow shortly after this one.

But, the moral of the story here: If Pandora wants the best chance of realizing its vision going forward, it needs to ratchet down the rhetoric, drop the motions and lawsuits and sit down at the table with the major labels and representatives for songwriters and composers to rewrite the music industry's rules for the digital age.

-- 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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