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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