Pandora's CFO Talks Royalties, Streaming and Apple: "Steve Jobs Eviscerated the Music Industry"

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"I think what really needs to happen is we need to think broadly how do we drive engagement overall as a music industry, and that message is starting to make sense."

With a major, bottom line-impacting decision on royalty rates imminent, Pandora's chief financial officer Mike Herring was feeling brisk during an investors conference call on Thursday, delivering body blows to Apple Music and even Steve Jobs while offering a look inside his company's future in streaming music.

Soon, the Copyright Royalty Board will decide statutory royalty rates to be paid to labels and artists by non-interactive web radio stations like Pandora over the next five years. According to Herring, Pandora paid 40 percent of its Q3 revenue to the labels, "so it's a big deal." Pandora wants to lower its rate from 0.14 cents per stream to 0.11 cents per stream. SoundExchange, which collects and distributes those royalties, wants a rate of 0.25 per stream. 

"I think that business will continue to operate very effectively no matter what those rates are," Herring said, according to a transcript via Seeking Alpha. "What we want is a fair and reasonable rate. We think actually that copyright holders, artists, deserve to be compensated for us playing their music. We don't dispute that at all, and we want it to be a fair and a rational dollar amount."

He did caution that a higher rate could potentially land more streaming services in trouble, because "costs are so prohibitive that if you are not really amazing at it you go out of business. That's what happened to Rdio, right?" Herring said, referring to the service whose core pieces were sold to Pandora as it went bankrupt. "A beautiful product, a great product, but the business is just too hard. The costs are just too high."

Without revealing an exact game plan for Rdio or on-demand streaming in general, Herring did stress that Pandora's core focus on lean-back radio will not change ("we monetize that extremely well"), but that over time "we're going to layer on additional features" such as "on-demand functionality for music" or live streaming. He said the "good news is we build this huge audience with a profitable business, but we will layer on different experiences on top of that."

Herring's thoughts on Apple were not so cheery. "No one subscribes" to Apple Music, he said, even though the app exists permanently on hundreds of millions of phones. "Well, I guess a few million people do, but the reality is you want to get people to choose to do it, that is a much bigger trick. You have to have a great product."

Herring said Pandora is trying to bring the music industry back, because "it's had a tough 15 years. I mean Steve Jobs eviscerated the music industry with the launch of iTunes and it's been downhill ever since. And the download was supposed to save it — that didn't happen.

"Now on-demand streaming is supposed to save it," he added. "We will see if that happens. I think what really needs to happen is we need to think broadly how do we drive engagement overall as a music industry, and that message is starting to make sense."

Read more of Herring’s conversation here.

This article first appeared on Billboard.com.

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