Home > Uncategorized > #irespectmusic Invades the Boardroom: @sivers Calls Out How Pandora Hides Its War on Songwriters from Shareholders

#irespectmusic Invades the Boardroom: @sivers Calls Out How Pandora Hides Its War on Songwriters from Shareholders

June 13, 2015

The arc of the moral universe is long, but it bends toward justice.

Out of the Long Night of Segregation” by The Rev. Dr. Martin Luther King, Jr. (Advance, February 8, 1958, p. 26)

A common criticism of both public and private companies that waste the stockholder’s money is “where was the board?”  The company’s board of directors are charged by stockholders with providing the first line of oversight over a runaway executive team that act against the company’s interest.

If the board fails in its role, one of the ways that individual stockholders can call executives and board members to account is by attending an annual meeting.  Most of the attending stockholders have already voted by proxy (often by proxies given to vote in line with recommendations of the company’s board of directors–who are usually a slate approved by the company’s senior management.  Unfortunately for the attending stockholders, given the proxy system, voting at an annual meeting is quite the kabuki dance as we saw with the ridiculous Google annual stockholder meeting.

Attending stockholders are also dependent on the company’s executives to inform them in a full and frank manner of what the company’s executive team are up to.  Pandora’s executive seem to have kept a few key facts from the assembled group of stockholders, investment bankers and analysts.

Derek Sivers, the founder of the game changing CD Baby, apparently attended the June 4, 2015 Pandora stockholder meeting and writing in TechCrunch had this to say about the way Pandora executives manipulated information:

As Pandora shareholders convened their annual meeting this week, the streaming music giant’s executives predictably omitted an ongoing battle with songwriters over royalty rates in the hopes of focusing attention on the company’s recent growth.

But when it comes to Pandora’s relationship with songwriters, investors would be wise to dig deeper.

As someone who has both worked as a professional musician and run a successful music technology business, I remain puzzled as to why Pandora has chosen to wage an expensive and exhaustive fight against the songwriters that form the very foundation of its business – in courts, in the media and even in the halls of Congress – rather than negotiate with them. It just doesn’t make long-term business sense.

According to Pandora’s Form 8K recording the votes taken at the stockholders meeting, there were only two resolutions submitted for a vote.  The first was appointment of Ernst & Young as the company’s accountants.  The other was the approval of the senior management’s compensation package.

So now we know why Pandora executives wanted to keep it all unicorns and puppy dog tails at the shareholder meeting–get that executive comp approved so the massive stock payment gravy train would continue.

Knowing what we know about Pandora, no one should be shocked by this manipulation other than by the fact that it was done and Derek seems to be the only one to comment on it.  No stock analysts, no tech journalists, no music journalists have put this together.

But Pandora has a good reason to keep its war on artists and songwriters on the DL.  The last time Pandora’s lobbying and litigation tactics came together was with the ill-fated Internet Radio Fairness Act, a classic example of Silicon Valley overreach and vindictiveness.  Stockholders faired poorly as this Wall Street Journal chart shows.  The IRFA legislation was introduced on September 21, 2012 when the Pandora stock closed at $10.50.  The negative press on the legislation drove the price down to an all-time low of $7.18 on November 16–a few days after David Lowery confronted Pandora, Senator Ron Wyden and CES executive Michael Petricone at the Future of Music Policy Summit on IRFA.  Also about two weeks before the rollicking hearing on the bill on November 28, a hearing in which member after member chastised Pandora and the National Association of Broadcasters.  In fact, it resulted in Rep. Mel Watt announcing he was introducing a bill to essentially take away the streamers’ statutory license.

Pandora IRFA

Thus, the postulate:  Pandora’s stock price varies inversely to the intensity of its lobbying.

Destroying shareholder value was not lost on the executive team, apparently.  They’re a bit smarter about it now, as Derek writes.  Just don’t bring up these facts that could cause a run on the stock price.

For example, if you examine Pandora’s own investor information page, there is nothing about Pandora joining the infamous “MIC Coalition” (or as it’s known, the “McCoalition”). The McCoalition is devoted to destroying the lives of artists and songwriters.

There are, of course, some events that Pandora simply cannot hide from its investors such as the lawsuits against Pandora for stiffing artists who recorded prior to 1972.  Here’s how they inform stockholder about Pandora’s exposure:

The outcome of any litigation is inherently uncertain. Based on our current knowledge we do not believe it is probable that the final outcome of the matters discussed above will, individually or in the aggregate, have a material adverse effect on our business, financial position, results of operations or cash flows; however, in light of the uncertainties involved in such matters, there can be no assurance that the outcome of each case or the costs of litigation, regardless of outcome, will not have a material adverse effect on our business. In particular, rate court proceedings could take years to complete, could be very costly and may result in current and past royalty rates that are materially less favorable than rates we currently pay or have paid in the past.
No assurance?  No assurance?  Actually, there is one assurance–pay the creators of our musical legacy.   The one assurance Pandora won’t give.

What they don’t say is that the reason Pandora is in this fix to begin with is because the company’s policy is to try crushing artists and songwriters first, negotiate only if you have to.  Pandora could easily put that policy to a vote of the shareholders, but they never do.

When Pandora started making public appearances on Capitol Hill again in June, 2014, thing haven’t gone too well for stockholders.
Pandora IRFA 2
As Derek said:

Pandora ought to be on the frontlines with songwriters, working towards a solution – not standing in the way of meaningful reform.

By undercutting songwriters, Pandora’s approach to music licensing is not just self-serving, but shortsighted – and this is something its shareholders need to hear.

Blake Morgan said something very similar:
Imagine how great it would have been if Pandora had joined together to stand with artists and songwriters instead of fighting us every step?

I have to believe that in the long run, the cause of artists and songwriters is right and just and will be vindicated.  I’m not the only one who thinks that in the music community or on Capitol Hill, and I think Derek would agree.  Wouldn’t Pandora’s stockholders want to be on the side of moral justice?

Even if Pandora’s stock price is declining for other reasons, Derek still is quite correct:  The vindictive nature of Pandora’s management team is costing stockholders dearly.  The question is, where is the board?

  1. Steve
    June 13, 2015 at 11:37

    The cold, hard reality is regardless of how right and just the cause, vindication via shareholder activism is very, very unlikely. Wish I could agree that the “vindictive nature of Pandora’s management team is costing stockholders dearly,” but I cannot. As with any publicly held corporation, the board and management are charged with a fiduciary responsibility to increase shareholder value (i.e. maximize profits), and if that means shortchanging artists and songwriters to a degree that would be laughable were it not so egregious, that is what they will do.

    Virtually the ENTIRE lot of outstanding shares in Pandora is held by institutional investors who could care less about the plight of artists and songwriters. Like the management and board of Pandora, they are singularly concerned with increasing shareholder value, period. They would prefer Pandora pay zero for music.

    Heads up to Mitt and the rest: corporations are most certainly NOT human. If they were, they would be the biggest assholes imaginable. Thus the need for meaningful regulation, and therefore the need for political action. Sadly, in the era of corporatism (which evidently has supplanted capitalism in this country), Pandora, Spotify and the like can send their K-Street armies up the hill to fight their battles with mountains of cash. And the Hill will respond. Until we do something serious about the influence of money in politics in the US, we are soundly screwed on this and virtually all other issues – literally any issue you can name.

    And what would be our expectations from regulatory reform at present, given the forces (read “money”) aligned on the other side? We would be fortunate indeed to see a doubling of royalty rates don’t you think? So is $180 from 1,000,000 streams acceptable? No. Not even a dent in the problem.

    As much as I appreciate Mr. Sivers’ sentiments, his stock holdings as a percentage of total shares outstanding are likely comparable to the per-stream royalty rate paid by Pandora, on the order of 0.00009% assuming he owns 19,000 shares or so, worth around $325,000.

    The solution will not come from shareholder activism. That much is for certain. As certain as the fact that when one ponders cutting-edge radio, Nebraska is not the first location that comes to mind.

    Just my $0.00009.

  2. Chris Castle
    June 13, 2015 at 11:47

    I was thinking more about stock analyst activism. It’s something that hasn’t been tried yet, so while I don’t view anything as the silver bullet, I don’t think we can really predict what would happen.

  3. Steve
    June 13, 2015 at 12:25

    Don’t see that either Chris. The analysts work for the very institutions singularly concerned with profit and shareholder value, and if the songs keep flowing in, why pay more?

    How artistically inclined, as a whole, are the analysts advising the owners of Pandora stock. Here is a list of the top ten owners (again from Yahoo):

    Price (T.Rowe) Associates Inc
    Vanguard Group, Inc.
    Artisan Partners Limited Partnership
    Waddell & Reed Financial Inc.
    Goldman Sachs Group, Inc.
    Blair (William) & Company, L.L.C.
    Crosslink Capital. Inc.
    Eminence Capital, LP
    Morgan Stanley
    Wellington Management Company, LLP

    And here are current analysts’ opinions:

    http://finance.yahoo.com/q/ao?s=P+Analyst+Opinion

    They don’t seem too concerned to me. They know we have no clout, and they like that. I think we can predict what will happen. Nothing. Not that I am against trying that or anything else, but I see no answer as of yet, other than change via the regulatory/legislative arena which is next to impossible until the corruption of our political system by moneyed interests is meaningfully addressed.

    On top of that, an entire generation now feels we owe them all of the music they want for free.
    I adore music and have all my life, but I don’t need every song I have ever enjoyed available anywhere at any time for free, as if it were my birthright. My feeling is most of them don’t love music. They don’t even love listening to music. They love hearing music. They will side with Pandora always (or that’s my fear), not with the creators.

    A dystopian view of the future I admit. Something surely has to give.

    Only possible way I see to address the problem in the current climate is for artists to release short, possibly low res mixes of songs for release on streaming services with free tiers (and Pandora), with longer, better versions available for a price on CDBaby or another venue that pays an acceptable return. Doesn’t have to be a big return, but damn. If you do strictly studio work, you have no chance of covering expenses, even if home recording. Zero. Been there and done that.

    Perhaps artists playing live should, after announcing the next tune is from their most recent studio effort, point out that there might not be another, as they really cannot afford to lose any more money carefully crafting songs and refining mixes in the studio environment. Even that would likely be met with apathy.

    Strange times. No easy answers. Thanks for your many contributions to the ongoing dialog.

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