Pandora, Spotify Are Shafting Themselves and Investors

NEW YORK ( TheStreet) -- I make the assumption that Spotify CEO Daniel Ek and Pandora ( P) co-founder and Chief Strategy Officer Tim Westergren haven't talked. And that, by extension, other high-level employees at the two companies do not partake in meaningful conversation.

Much to my dismay, I know that Westergren and ASCAP President Paul Williams do not communicate -- aside from tired rhetoric in the media -- and likely will not for the foreseeable future.

While I understand that discourse between Westergren and Williams and Pandora and Spotify come in different flavors, I just can't wrap my head around why neither interaction appears to have occurred. And, if it has occurred, is occurring or will occur, why we're not hearing about it.

I've said my peace on Williams/Westergren in the above-linked article, but an Ek/Westergren hookup makes even more sense.

Here's what Ek told The Wall Street Journal last week when asked if he was surprised that several artists think Spotify doesn't pay enough royalties:
I'm not surprised, but I'm saddened by it.

He goes on to make an excellent point distinguishing downloads from streams:
We're selling access, not ownership; that's something very, very different.
And, you know, the focus of the artist ought to be how you maximize the number of streams, because that, in turn, will be better long-term for you.
But that's hard for people to understand: All they see is millions of streams, and they see, you know, not millions of dollars in the end, but thousands of dollars, and they think that a million streams is comparable to a million downloads, which it obviously isn't.
Sure, you're going to stream that Rihanna song five or 10 times, but you're also going to listen to David Bowie's entire back catalog, which you might not have gone out and purchased. Those are two very, very different behaviors.

Bingo. I contacted Westergren for his reaction to Ek's comments (and too see if the two ever talk or if he thinks it would be a good idea for them to do so). He told me "no comment," but did answer one of my questions: "Haven't spoken to him."

While I appreciate and respect Westergren's penchant for few words about this sensitive subject matter, the time is long past for everybody involved in this mess -- Pandora, Spotify, ASCAP, the labels, you name it -- to drop the self-interest and go on the record, about everything.

We're on a Downbound Train right now. Like the character in that Springsteen song: He works at the car wash where all it ever does is rain. Nearly all of the players in the Internet radio dustup are mired in self-serving behaviors that breed negativity, but very little, if any, forward motion.

Pandora and Spotify do compete, but are, at the same time, complementary. Clearly they're two different types of Internet radio. I don't think Pandora believes the full-fledged subscription model is the way to go; you simply cannot scale it enough to generate game-changing revenue. So it does pure-play Internet radio. And it stays hyper-focused on that model.

However, clear similarities exist between Pandora and Spotify. Ek pointed one out that, though not without minor holes, is accurate and sensible. There's a big difference between streaming music -- whether on-demand or as radio -- and hawking downloads. But, there's a more important likeness between Pandora and Spotify:

They're embroiled in the fight of their respective lives.

Despite Pandora and Spotify's theoretical and fundamental differences (on-demand v. radio, direct v. compulsory licensing), make no mistake, for all intents and purposes, this is a common fight. It's about helping a backward-looking music industrial complex -- and all of its moving parts -- see the most sensible and lucrative ways forward.

How this thing comes to fruition -- on the performance and publishing side -- could dictate survival or the opposite of survival for both companies. It could determine if stand-alone Internet radio companies are able to remain independent or must seek larger buyers -- such as Apple ( AAPL) or Amazon.com ( AMZN) -- who could swallow them up and subsidize their operations. The future, relative health of so many businesses -- from radio to the "record" industry -- is at stake.

Yet, the two most high-profile Internet radio companies are unwilling to align. Not as business partners necessarily, but as advocates for proper treatment of Internet radio -- broadly speaking -- in the royalty fight. Doing the work that needs to be done to get more people thinking like THIS and fewer people spewing the type of misinformation we see from MusicFirst, misguided artists such as Cracker's David Lowery and others.

By not joining forces, Pandora and Spotify handicap themselves. This not only hinders each company's chances in the royalty skirmish, but does a disservice to investors who have considerable interest in a favorable resolution.

In the bigger picture, Pandora and Spotify's unwillingness to work together makes it less likely the music industry will wake up and begin to thrive to its maximum potential in 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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