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Pandora for President!

Pandora's (NYSE: P  ) streaming "I Fought the Law" these days. Will the law win?

The leading streaming music service is throwing its weight behind the Internet Radio Fairness Act, a bill that was recently introduced in Congress that would lower the cost structure for music streaming websites.

It's easy to see why Pandora is behind the move. It shelled out more than half of its revenue last year in performance royalties. Sirius XM Radio's (Nasdaq: SIRI  ) rate, on the other hand, is less than 10%. Terrestrial radio has it even easier.

Pandora founder Tim Westergren is reaching out to his service's listeners this week, asking them to contact their senators to voice their support.

"It's crucial that Congress hears from fans of Internet radio today," he writes.

As a lifelong musician, I'm fully supportive of artist compensation, but this situation can't continue. Internet radio is bringing millions of listeners back to music, and is playing the songs of tens of thousands of promising artists who would otherwise never be heard. It should be given a fair chance to succeed.

This isn't the first time that a Web-savvy company has turned to its user base to help push beneficial legislation. Netflix (Nasdaq: NFLX  ) threw its weight behind H.R. 2471 last year, the House bill that would allow Netflix subscribers to share information with their friends online.

The strategy may not always work, but you can't blame Pandora for trying. There are 56.2 million active monthly users that it can preach to now. They're a surprisingly loyal lot for a service that is consumed largely by freeloaders. Pandora served up 1.16 billion hours of content last month, 70% ahead of where it was a year earlier.

Skeptics will argue that it's up to Pandora to fix the inequity. Why doesn't Pandora get more of its users to pay for premium commercial-free and mobile access? Why doesn't Pandora serve up more ads to its freeloaders? Why can't it justify higher rates from its advertisers? Any of these three events would validate Pandora's business model without the senatorial tug.

However, Pandora still has a point when comparing online radio rates with traditional FM and AM radio. Maybe Pandora will have to be more explicit to mobilize its listeners. Maybe it will have to hammer home the alternative if it's not able to be consistently profitable with an ad-supported model.

Then again, maybe Pandora users will disregard Westergren's call to action the way that they ignore the ads.

Streaming out loud
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The Motley Fool owns shares of Netflix. Motley Fool newsletter services have recommended buying shares of Netflix. Motley Fool newsletter services have recommended creating a bear put ladder position in Netflix. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Netflix. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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  • Report this Comment On September 25, 2012, at 12:51 PM, Brent2223 wrote:

    P is a music streaming service, NOT internet radio - big difference. All P revenue is associated with music, this is not the case with SIRI and AM/FM. Thus, makes perfect sense that P is paying out more royalties as a percentage of revenue.

    Once you get past the misuse of the word radio, the current structure makes a lot more sense...

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