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Pandora CEO Joe Kennedy Tells Paul Resnikoff He Doesn’t Know How Much Money He Makes from Pandora

December 1, 2012 5 comments

Must be nice to be able to forget your salary–Paul Resnikoff of Digital Music News gets the scoop:

So let’s help Joe refresh his recollection.

According to the Securities and Exchange Commission, Joseph J. Kennedy, Pandora’s CEO, President and Board Chair Director) was recently granted Pandora stock options totaling 1.35 million shares at $10.63, or $14,350,500.  Kennedy’s salary is $732,000 according to Yahoo! Finance.

As far as I can tell, Tim Westergren’s current salary is undisclosed (although his 2004 employment agreement is available), but we know he’s been selling some stock.  $9,932,587 of stock so far to be precise.

Typically, we got a heap of sanctimony about struggling startups from former eMusic CEO and current Venrock VC David Pakman at the House IP Subcommittee hearing on Wednesday.  I have to believe that David probably didn’t know about the salary disparity at Pandora.  Some might praise Kennedy for holding off exercising his recent stock option grant, but with that eyepopping salary, it’s not like he’s bootstrapping.  And we don’t know what shares Kennedy sold either in the IPO or pre-IPO.  I can’t believe that the stock options Kennedy is sitting on is the only Pandora stock he’s ever had.

Paul Resnikoff’s reporting in Digital Music News turned up another nugget:

[Pandora] CTO Tom Conrad has taken a cool $13 million off the table, and the broader group of executives and investors have removed more than $70 million in cash in just over a year.  By comparison, there’s almost no stock purchasing by this group: since going public, records show buys of just over $1 million.

So this points out one of the problems for Pandora–executive compensation.  How is it that a company that makes no profit can afford to pay these astronomical salaries?  If the company capped all the executive salaries at $150,000 a year, they’d probably be profitable.  And frankly, given the large stock awards for this crew, you would think that their board would demand it.

Remember–Steve Jobs took a $1 salary.

But then Joe Kennedy’s stock is worth about $3 million less than it was when he started these IRFA shenanegans.  All Pandora employees must be really grateful for how he’s handling the stock price.

UPDATE: Research has turned up an “investor offer” to purchase shares of Pandora stock from insiders pre-IPO.  What this means in English is that when Pandora was still a private company (before their IPO) the venture capital firms that had already invested in Pandora increased their holdings of Pandora stock by purchasing vested shares of common stock from the top executives of the company.  This is a little perk that is frequently extended by venture firms to the top executives in a company that the VCs have already invested in that is likely to go public.  It let’s the executives “get a little liquidity”.  Doesn’t that just sound groovy?

So in the case of Pandora, this happened in August of 2010–you know, when the “royalty crisis was over.”

Here’s the page (p. 113-114) from Amendment Number 6 to Pandora’s S-1 (the form you have to file with the SEC when a company “goes public” or registers it shares in an underwritten public offering of the company’s stock).

Pandora insider shares

So what this means is that even though Joe Kennedy hasn’t exercised any of his newly minted stock options, he did “get a little liquid” to the tune of $2,515,979 back in the pre-IPO days of Pandora.

Oh, and so did Tim Westergren, he got $2,157,375.

Now–I don’t begrudge these guys their millions, I really don’t.  But don’t come crying to the artists and songwriters and tell them how you just can’t survive when you’re playing Silicon Valley money games under the table.

Creators would like a little liquidity, too.

PS If you want to voice your opinion on IRFA, Senator Ron Wyden has a comment page on his Senate website click here.

Pandora’s Spinners Destroy Stock Price

November 16, 2012 Comments off

Check out the performance of NYSE:P this week–Pandora’s Tim Westergren’s performance at the Future of Music Coalition Policy Conference was a new approach for a top executive of a public company.  Bring the spinners from the company’s shillery and the bots from the company’s trade association to do what?  Build up the company’s future with all the good news that it was able to have a hugely successful public offering and was on a fantastic growth trajectory in the short term due to a superior product and an effective sales force?

No–these inside the beltway geniuses told the markets that anyone getting into the space would have to be crazy and that the company was barely treading water.

And did the stock price explode to the upside with all these smarter-than-thou types educating the markets?

Actually–the stock hit an all time low and is testing lower lows today.

So because Pandora is being manipulated in my view by the Gang of Four and other Big Tech oligarchs, Pandora’s stock took the hit and that creamed the net worth of all Pandora stockholders.  This inexplicable “strategy” with messaging that is right out of 1999 is slamming the company’s market cap.  And guess what?

Whatever happens to this bill, the Gang of Four will not have their fingerprints on the bill.  Pandora will, and specifically Tim Westergren will.  If the Gang of Four and Clear Channel step away from the bill and leave Pandora twisting in the wind–which could very easily happen–Wyden and Chaffetz will say they were misinformed and everyone will move on.

Except Pandora.

Wakey wakey kiddies.  Think of the employees who are watching their stock tank.

The Education of Senator Wyden: Don’t break the artists…You can’t get away with the old RIAA Booga Booga Booga or that you’ll make it up on volume

November 14, 2012 Comments off

Senator Ron Wyden revealed his well intentioned but startling lack of education about the dynamics of the opposition to the Internet Radio Fairness Act during his speech at the Future of Music Policy Summit yesterday, and it started with more of the same old whine:

You’ll hear the record labels oppose this legislation, spend lots of money saying – number one – Western civilization is going to end if we have fairness in these rates.  And they’re going to offer all sorts of arguments for why royalty rate discrimination is okay.  I personally think that if the royalty rates are lower, the internet broadcasting market becomes larger, and that’s a strategy for creating more income for artists, and more music choices for consumers, and a broader array of music.  And that sounds to me like a worthy outcome.

This is, of course not what is happening and it is definitely not what happened to Senator Wyden yesterday.  It was artists who complained about his version of “trickle down innovation”, not the record companies.   In fact, there was not one major label on the IRFA panel–his main opposition came from Patricia Polloch of the American Federation of Musicians and David Lowery of Cracker and Camper Van Beethovan.

The artists don’t want his bill.  Senator Wyden’s speech writers wrote a speech for him to give in 1999.  It does not play in 2012.

He also committed the fatal error of trying to obfuscate the really nasty parts of his bill–the censorship part and the court packing part.  David Lowery called this “newspeak” referring to George Orwell’s iconic 1984–Big Tech and Big Media want to get control over these pesky artists and put them in their place–sue them for antitrust conspiracy if they speak up and completely capture the Copyright Royalty Judges–what David Lowery called “agency capture”.

Senator Wyden said that SOPA and PIPA had the laudable goal of fighting piracy, so everyone expected–perhaps naively–that Senator Wyden would be coming with serious legislation that addressed this issue in a serious way.

Instead, we got legislation designed to break the artists.

Whether it’s just irresponsible or a calculated ploy, it still stinks just as badly and I don’t think there’s a way to “fix it” as they say in Washington.  It’s a lot harder to get language out of a bill than to put language into a bill.  That’s why the whole thing must go, and the Gang of Four and their cohorts in the so-called Internet Radio Fairness Coalition need to go back to the rate court like they did to get the rates they crowed about in 2009 but don’t like now that companies like Pandora have had a public offering.

You know, the rate court that they tried to gut.

PS If you want to voice your opinion on IRFA, Senator Ron Wyden has a comment page on his Senate website click here.

NYSE:P

A Good Deal To Do: Pandora Doubles Down Against Creators, Now Strikes At Songwriters

November 6, 2012 5 comments

“You work hard, madame,” said a man near her.

“Yes,” answered Madame Defarge; “I have a good deal to do.”

“What do you make, madame?”

“Many things.”

A Tale of Two Cities by Charles Dickens

According to Bloomberg News, Pandora has opened a new front in its war on creators–now the $2 billion “music company” is suing songwriters represented by the American Society of Composers, Authors and Publishers.  And let’s be clear about exactly who the real defendants are in Pandora’s case.  Pandora and its venture capitalists and Wall Street underwriters may be suing ASCAP, but the people that Pandora is really suing are the songwriters whom ASCAP represents.

Why?  ASCAP is a voluntary association of songwriters in which songwriters pool their resources to grant blanket licenses and collect revenues.  So when you hear these inane statements like “Every Time A Phone Rings, ASCAP Won’t Get Its Wings” from faux copyright experts like the Amerikat, just remember–ASCAP is songwriters.  ASCAP is able to issue licenses because its members authorized it to do so.  The ASCAP board is elected by its members, not anointed like the Creative Commons board.  So when Pandora sues ASCAP it is really suing songwriters.

(And who wants to bet that Pandora’s lawyers (who also represent Google) will make more money off of suing ASCAP than Pandora will ever save in lower license fees even if Pandora is 100% successful? And ASCAP’s cost of litigating the rate court will have to be paid by ASCAP, making the ultimate royalty rate much lower even if ASCAP is 100% successful.  Boy have we seen that movie before.)

They Hate It When You Organize

If it wasn’t clear before, the Pandora lawsuit against ASCAP brings into sharp focus the purpose behind one part of the Internet Radio Fairness Act:  Section 5(a), which allows Pandora, Google, Clear Channel and their fellow travelers to sue any group of creators acting jointly to license their rights.  How can creators be sued by these gigantic companies?  Why under the laws designed to protect us from monopolists, of course.

You caught the irony there, right?  Google and Clear Channel are using Pandora as a stalking horse to sneak through laws that would allow monopolists to sue any group (however small) that got in their way, artists, labels or otherwise.

It will be a short step to get Chaffetz (RINO-UT) to broaden his bill to allow anti-monopoly suits against songwriters who get in the way as well.  So it should not be a surprise that Pandora is now suing ASCAP–Google’s own Madame Defarge has been down this path before, too.   One can just imagine her hissing at Tim Westergren over her knitting.

“Bravo!” said Defarge…”you are a good boy!”

As Tim Westergren told Ben Sisaro of the New York Times (speaking of IRFA), “This is not an argument about going out of business.”  That’s exactly right, it’s an argument about how to profit Pandora by extracting yet more money from songwriters and recording artists.  Pandora, Sirius XM, Clear Channel and many others you see, all enjoy a “compulsory” license for sound recordings under Section 114 of the US Copyright Act (a “114 license”), meaning that the government has taken away the right of recording artists to refuse to participate in Pandora’s offering.

Every license–even compulsory ones like the 114 license–have to have a royalty rate.  In the case of the 114 license, that royalty rate is set by the Copyright Royalty Judges, but has historically been negotiated privately and then submitted to the judges for approval.  At a very high level of generalization, that’s similar process to the rate negotiations in the ASCAP blanket licenses.

What’s interesting about the ASCAP blanket license is that while it is not a compulsory license,  the blanket license, in its own way, is a kind of government license.  This is because ASCAP operates under an antitrust consent decree and its rates are either negotiated, or, if you have particularly intractable people like Pandora and Google, it ends up in a “rate court.”  In ASCAP’s case, that is a federal judge sitting as the decider on whether the rate is fair.  (This particular judge recently ruled in favor of Google in the Viacom v. YouTube case only to be overturned on appeal.)

Google’s own Madame Defarge is no stranger to the rate court, so it should not be surprising that Pandora has thrown in its lot with Google with Mr. Chaffetz’s IRFA bill, and now is following the bloody footsteps of Madame Defarge in suing ASCAP songwriters in the rate court.

The one difference, of course, is that in order to protect companies who want to use the songs under ASCAP’s blanket license–say Google, for example–from the vicious monopolistic tendencies of songwriter groups–you know how they can be, these all powerful songwriters–the consent decree allows songwriters to “opt out” of the blanket license if they file certain paperwork.

One can’t help but notice that opting out of the blanket license for Pandora is the one thing that an artist/songwriter can do to keep Pandora from playing their records if that artist feels like Pandora is jacking them around.  On the one hand, the artist/songwriter cannot stop the use of the recording.  On the other hand, the songwriter/artist can opt out of any license granted by their PRO, which presumably would prevent Pandora from playing the recording.  Or Clear Channel, or Sirius XM.  (It’s likely that a songwriter could opt out of just the Pandora license if they wanted to.)

Alone, Powerless and Broke

These suits against songwriters and legislation against recording artists are the latest examples of the heavy handed approach of the new boss in the digital animal farm.  Definitely worse than the old boss.  Some commentators seem to think that the Chaffetz legislation is “good for the music business” because–and you can just hear it coming–a rising tide carries all boats.

If the Pandora lawsuit against songwriters tells you anything, it tells you that some boats are more equal than others and Pandora is throwing songwriters and artists over the side.  What these companies really want is for creators to be (or at least feel) alone, powerless and broke.

But you can just look on in shock and awe at the Pandora juggernaut.  They have a good deal to do.

For them.

If you want to voice your opinion on IRFA, Senator Ron Wyden has a comment page on his Senate website click here.

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