Pandora and Sirius Side by Side And Does Sirius Mislead Consumers?

Expect income inequality to be a major theme in this fall’s elections, and fairness begins at home.

We’ve posted about Pandora’s executive compensation before and certainly “Million a Month” Tim Westergren has become something of a poster child for Pandora’s problems due to his stock sales.

westergren 5-5-14

It’s important to know that the term “executive compensation” as used by the investor watchdog companies like Morningstar includes both salary and stock compensation.  The real bang is usually in the stock–this is the upside for entrepreneurs.  No one should begrudge Westergren or the Pandora executive team the upside.  It is, after all, their company and they put it all together and took the company public.  Twice.

But the problem for Pandora is that their entire value is based on their ability to sell one product–music.  And they have made a science of wringing their hands to the US government to try to drive down the price they pay that is very much a part of their market valuation.  To drive the price down through lobbying and influence peddling.

And who can forget Paul Resnikoff’s interview with Pandora’s former CEO Joe Kennedy immediately following the catastrophic IRFA hearing when the Pandora CEO claimed not to know how much money he made?

In other words, Pandora want to force artists to license to them, they like that part.  But Pandora want to keep all the upside for themselves.  I have often said that what Pandora should do if they want lower royalty rates is put a big chunk of stock into an escrow account and liquidate that stock every two years.  Distribute the proceeds out to the artists like a “royalty dividend.”  That way if artists invest in Pandora by giving Pandora a discounted rate on royalties like is currently the case, the artists involved could recapture the upside of that investment as represented by the escrowed stock.

Otherwise, Pandora is looking for free money.  And since that royalty dividend idea was not only rejected but was met with a demand for even lower royalty rates with absolutely no upside for anyone but Pandora executives and shareholders–not to mention costly shenanigans for the rate courts’ latest feeble attempt at a command economy–we begin to get the picture.

And here it is.  CEO compensation up 3,882.3%:

Pandora Executive Comp

Sirius’s Misleading Advertising

The same Morningstar comparison for Sirius shows a very interesting result.  Remember, Pandora constantly complains that it is unfair that Sirius pays an arguably lower royalty rate for music than does Pandora (which is misleading, because Sirius is not a pure music play, had much greater startup costs, a few other reasons).

sirius exec comp

Interesting–the total executive comp for the covered executives is actually less than Pandora (by an amount close to what Pandora paid ASCAP songwriters)–even though Pandora pays (according to Pandora) a higher royalty and Sirius has to deal with paying non-compulsory rates for non-music channels.

And the compensation to Sirius’s CEO was up a mere 596.21% year over year.  Compare Sirius:

sirius exec comp 2to Pandora:

Pandora Key Executive Comp CloseupBut yet each company wants to salt their earnings by stiffing pre-72 recording artists and their estates.  It’s hard to tell definitively, but each company appears to have decided to stop paying pre-72 artists at almost the exact same time.  No collusion there, though, surely.

How has each service communicated their desire to stiff artists to the user base?  I haven’t been able to find anything from Pandora to their users. But I did find this about Sirius.

Sirius has a special part of their website advertising dealing with music rates.  The company charges consumers separately for music, probably so that users see the cost to Sirius of the music the users enjoy.  Sirius no doubt would like consumers to think that this is a lot of money for music–it’s actually much more believable that the users will reach the opposite conclusion.

Remember–Sirius stopped paying on pre-72 recordings around December 2013.  Here’s their marketing collateral effective January 2014:

sirius music fee 1

The language in paragraph 1 used to read like this:

sirius music fee old 1

The music fee used to say this:

sirius music fee old 2But now says this:

sirius music fee 2

So even though Sirius stopped paying on pre-72 recordings and decreased their music royalty payout, they still increased the music fee charged to their users (that ostensibly is charged to offset royalty costs).  And for all the waffling around about what they pay on, Sirius never acknowledges to their consumers that they are in fact not paying pre-72 artists because they decided to stop paying.  And they clearly did not pass the savings on to the consumer.

This sure smells a lot like false advertising to me.

If You Put Your P&L On the Table, Expect Scrutiny

Some people will say that artists don’t have a right to a share of stock in these companies and don’t have a right to criticize their operators or operating costs.

Wrong–the only compensation artists get is their royalty which is a reflection of the upside (or it should be).  Both Sirius and Pandora deny artists that upside.  When companies both deny artists the benefit of their bargain through lobbying paid for by the very upside the artists are denied, reward themselves richly and mislead consumers….don’t be surprised if people get angry.

And remember–Pandora was the one that complained of low profits.  So maybe we can help them man up and cut some costs before we hand over even more of our royalty.