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Digital Double Talk on Music Royalties | Commentary

Publicly traded companies often tell one story to Congress and another to Wall Street. When they want favorable legislation, they cry the blues. When they report to their investors, it’s nothing but bluebirds and blue skies.

Pandora Media is the latest company to spin this double-talk between Washington and Wall Street. In Congress, the digital radio giant is pleading for an 85 percent cut in the rates it pays to professional musicians, recording artists and record labels. Pandora boss Tim Westergren says current “predatory” rates have “devastated Internet radio.” It’s a “destructive stranglehold” that has the company “just keeping its chin above water.”

But Pandora is telling Wall Street that everything is peachy, with good reason. Revenues and mobile listening have “reached record highs.” Even under the supposedly unworkable royalty rates, Pandora’s chief financial officer is “confident we can build a really good company.”

When you look at the facts, Pandora is shooting straighter with Wall Street than it is with Washington. Westergren and company do not need a sweetheart royalty deal, particularly one that would stiff professional musicians — the folks who make Pandora’s business possible.

Pandora says cutting royalty costs will allow it to grow — making a bigger pie that will eventually benefit artists, too. But Pandora is already growing at an extraordinary rate. It has 200 million registered users, double what it had two years ago. Westergren says in-car listening is his company’s “holy grail.” Pandora is now integrated across 85 vehicle models. Pandora claims to be the largest radio company in nearly every major market. Cutting royalties doesn’t solve a growth problem because there isn’t one.

Ironically, Westergren is protesting that Pandora isn’t consistently profitable yet. If true, that has nothing to do with royalties and everything to do with the company’s business strategy. Like many Silicon Valley startups, Pandora has focused on attracting an enormous number of users, while putting short-term profits on the back burner.

Shareholders are always thirsty for profits, and Pandora’s shares have more than doubled over the past 12 months. But are artist royalties standing in the way of even greater gains? Hardly. Royalties account for roughly half of Pandora’s total costs.

For a company with only 880 employees and little overhead, it makes you wonder what else they’re spending $600 million in annual revenues on. Royalty payments should be their biggest expense — music is to radio what films are to a movie theater. Without music, radio is just static, voice-overs and endless commercial advertisements.

If growth and profits aren’t the issue, what is? It could have something to do with Westergren’s growing stock cash-outs. According to a recent article in Digital Music News, he has now cashed $15.1 million in Pandora stock since the company went public — that’s about $1.2 million per month. My question for Westergren is: How many millions must you earn before you stop trying to pick the pockets of professional musicians?

Pandora doesn’t need a royalty cut, and musicians can’t afford one.

Raymond M. Hair Jr. is the international president of the American Federation of Musicians of the United States and Canada, the largest union in the world representing professional musicians.

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