RIAA Lobbyists Turn Anti-Pandora Desperation Level Up To 11

Music Industry

from the are-they-serious? dept

We’ve written a few times about MusicFirst, a front group set up by the RIAA (potentially illegally), pretending to lobby for “artists'” interests, but which is entirely about pushing the agenda of the RIAA in increasing royalties. It was originally set up to target terrestrial radio rates, but has had a real hard on for Pandora lately. In April, we wrote about the group’s nutty argument that Pandora was deliberately not selling ads to avoid profitability. They honestly claimed that all Pandora had to do was sell additional ads and profitability would be no problem — leaving out the simple fact that, if Pandora could sell more ads, it would. The ad business is a terrible business, and it’s not easy to sell into it. Yet, these lobbyists pretend anyone can just snap their fingers and the ad dollars come rolling in. More recently, they argued that Pandora’s attempt to seek the same internet streaming rates that other companies get was “a sick joke.” Again, they weren’t seeking lower rates as others — but rather the exact same rates that competitors like iHeartRadio had. And they were told it was a sick joke?

The latest is really just blatant stupidity. MusicFirst commissioned a study from Jeffrey Eisenach, and apparently they gave him the instructions to do anything possible to make Pandora’s rates look “low,” because the results of the study don’t even pass the most basic laugh test. I honestly, expected some reasonable argument, but got the following:

Other Retailers Pay as Much or More Than Pandora: Measured as a proportion of revenues, several major “online” retailers, including 1-800 Flowers, Netflix, and Overstock.com, and “brick-and-mortar” retailers, like Best Buy and WalMart, pay about as much as or more than Pandora for the products they purchase from others and resell to consumers.

Yes, you read that right. They’re comparing Pandora to retailers, rather than other streaming sites. But, Pandora is not a retailer like 1-800 Flowers. I mean, you have to be scraping the absolute bottom of the barrel to try to prove your point when the best you can come up with is this totally different and unrelated business of reselling flowers pays a higher rate to its wholesale providers than a streaming radio station pays for licensing its songs. That’s not even comparing apples to oranges, because at least both of those are fruit. Even apples to orangutans would be comparing two living things. This is comparing apples to ornamental knickknacks.

Two of Pandora’s Major Online Music Competitors Pay More: “Pandora has made much of the high proportion of revenues it pays out in royalties, but there is nothing surprising or uneconomic about a retailer passing through a high proportion of its gross revenues to the ultimate producers of the products it sells – indeed, at least two of Pandora’s major competitors, Spotify and iTunes, pay out higher proportions of their revenues (70 percent) in royalties than does Pandora.”

Of course, once again, iTunes is not a competitor (well, other than the streaming service they just launched, but that’s not what’s being discussed here). But, of course, iTunes uses music as an enticement to get people to buy iPhones, not to make money directly off of music. And, using Spotify as an example here actually cuts against their argument, since the rates Spotify pays are insanely high as well, took over two years to negotiate, and yet some musicians are still whining that it’s not enough.

Pandora Has Realized Hundreds of Millions in Profits for Investors: “Pandora’s initial investors, including venture capital firms and Pandora’s executives, have already realized hundreds of millions of dollars in profits since the company’s 2011 Initial Public Offering.” In addition, “Company founder Tim Westergren sold shares totaling nearly $15 million between January 2012 and June 2013”

Um, then why didn’t the RIAA invest? This argument gets thrown out sometimes by people who don’t understand the difference between revenue and equity. Capital gains from investment — especially for startups — is entirely different from revenue, yet people who don’t understand the difference between income and equity like to compare the two as if it means something. It doesn’t. It just makes them look ignorant. You get capital gains from taking an investment risk (many of which don’t pan out) and it is not related directly to revenue. The fact that someone who put in a lot of equity is able to capitalize on that is very different from arguing that a business is profitable. If you don’t understand the difference between equity and revenue, you really shouldn’t comment on it, and it’s pretty sad to put it in an official “study” as it just seems to scream ignorance about how these things work.

Basically, there’s no “there” in the study. The best they can do is pretend that Pandora is in a totally different business to attack it. It kind of shows just how desperate the RIAA is getting.

Filed Under: jeffrey eisenach, licensing, lobbyists, royalties
Companies: musicfirst, pandora, riaa