The Wall Street community always amazes and confounds me at the same time. (Remember I suggested that Facebook would be a good buy.)
So when it comes to investing in media, are you smarter to commit your portfolio to up-and-coming new media outlets like Pandora OR stick with traditional media companies? Or Treasury Bills? Or Apple?
According to a detailed analysis in the investment report, Seeking Alpha, while Pandora may be growing its audience, the company’s declining share value can be attributed not to a lack of advertising, but the onerous royalty fees it must pay.
The interesting part of the analysis is the conclusion that brands like Pandora and Sirius are “at a real disadvantage when competing with terrestrial radio operators such as Cumulus Media and CBS Radio. These companies don’t have to pay royalties to musicians and the record companies they work for under current federal law.”
The report also acknowledges that the Clear Channel/Tyler (sic) Swift deal is performance based. “That saves Clear Channel money because it doesn’t have to pay Swift if her music doesn’t attract any listeners. Digital radio providers such as Pandora and Sirius have to pay royalties every time they play a song, even if the song generates no revenue. That makes digital music a black hole into which cash disappears, rather than a revenue generator.”
This is one person’s opinion – and yes, he opted to stay anonymous, but I’m thinking it will ring true for many people, and not just those who wish that Pandora would simply go away. In broadcast radio, we are not used to thinking that customer acquisition is expensive, as it is with pure-play Internet brands.
So the next time your neighbor, Greg, tells you how cool Pandora while you’re hanging out at the neighborhood barbeque, you might want to remind him that there’s more to being successful than looking and sounding cool.
A great business model helps.
Jacobs Media has consistently walked the walk in the digital space, providing insights and guidance through its well-read national Techsurveys.
In 2008, jacapps was launched - a mobile apps company that has designed and built more than 1,300 apps for both the Apple and Android platforms. In 2013, the DASH Conference was created - a mashup of radio and automotive, designed to foster better understanding of the "connected car" and its impact.
Along with providing the creative and intellectual direction for the company, Fred consults many of Jacobs Media's commercial and public radio clients, in addition to media brands looking to thrive in the rapidly changing tech environment.
Fred was inducted into the Radio Hall of Fame in 2018.
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Pandora’s business model is the infamous, “we lose $.05 on every sale but make it up in volume”. Their problem, along with any streamer of any size, is that royalty rates are so high that there is no business model that works, or can work. All are losing money with the hope that rates come down to allow one before they are flat broke.
This is, long term, bad for radio, because like it or not, much of the future of music based entertainment is going online. Without a business model that allows that migration to be profitable, terrestrial radio is forced to choose between giving people what they want and making money. That’s a hobson’s choice that’s not goo for anyone.
Cell phone chips and HD radio are not the future. Streaming is. Radio needs to realize that its a fight for its life against an opponent (the music industry) that has never lost a fight and sees no reason to give an inch. Radio has more weapons at its disposal than the music industry (its airwaves and airplay). Time to use them.
Bob, radio’s edge is being able to exploit multiple revenue-producing content silos. Pandora – there’s just the one. No question that streaming IS the future, and how the biz model comes together remains to be seen. Thanks for reading the blog and contributing.