Monday, April 1, 2013 - 1:00pm
The Verge columnist Greg Sandoval cites an RIAA report and statements made by SoundExchange (which collects sound recording royalties from licensed webcast services and satellite radio) to report "Pandora contributes about 25% of all the money the labels receive from the access models. (Incidentally, SoundExchange's revenue was up 58% last year.)" ("Access models" is label terminology for licensed streaming services.)
And this, according to Greg Sandoval in The Verge, is precisely why the labels need to play hardball with Pandora and Internet radio.
"Access models" "are our present and our future," RIAA CEO Cary Sherman told The Verge. "[This] underscores how vital it is to protect these increasingly important revenue streams."
In other words, the labels need to avoid destroying these revenue sources -- yet maintain the upwards pressure on royalties because they also need to maximize profit (and these services are labels' only bright spot right now). Rocco Pendola, columnist for TheStreet, says this shows "the music industry needs Pandora just as bad as -- or, dare I say, worse than -- Pandora needs them. Same goes for the rest of Internet radio."
"If access models fail," Sandoval writes, "the labels risk ending up back in a world where a single player like Apple holds all the power." Industry sources told The Verge that Apple and labels are increasingly close to a deals that would pave the way for an Apple "iRadio" streaming service.
In fact, should the record label give Apple royalty rates that are actually more affordable than the statutory streaming rates, Pandora would have "plenty of ammunition to argue on Capitol Hill that web radio is getting screwed."
Despite this, The Motely Fool is warning investors against Pandora. In a posted video, Motley Fool CTO Jeremy Phillips says Pandora is open to competitive disruption because it doesn't own the content it streams, and any deep-pocketed competitor can easily enter the business. In fact, companies like Google, Amazon, or Apple could operate streaming services at a loss to widen the market for their other businesses.
TheStreet's Pendola strongly disagrees, saying Pandora's Music Genome (its proprietary database of human collected characteristics about each song it plays that drives its algorithmic music programming) is a great example of intellectual property that can't easily be duplicated by a competitor. He also points to the fact that Pandora has been assembling both national and local sales forces to compete with broadcast radio, another accomplishment that won't be easy for a competitor to duplicate.
He writes, "Competitor after competitor has come in and done absolutely nothing to slow Pandora's growth. In fact, the growth has never stalled. In terms of listener hours and revenue, particularly on mobile, the company is as healthy as it has ever been. Don't expect that trend to reverse, even if Apple hits the market with an iRadio product."
Read Sandoval in The Verge here, see video from The Motely Fool here, and read Pendola in TheStreet here.