The Wall Street community always amazes and confounds me at the same time. (Remember I suggested that Facebook would be a good buy.)
So when it comes to investing in media, are you smarter to commit your portfolio to up-and-coming new media outlets like Pandora OR stick with traditional media companies? Or Treasury Bills? Or Apple?
According to a detailed analysis in the investment report, Seeking Alpha, while Pandora may be growing its audience, the company’s declining share value can be attributed not to a lack of advertising, but the onerous royalty fees it must pay.
The interesting part of the analysis is the conclusion that brands like Pandora and Sirius are “at a real disadvantage when competing with terrestrial radio operators such as Cumulus Media and CBS Radio. These companies don’t have to pay royalties to musicians and the record companies they work for under current federal law.”
The report also acknowledges that the Clear Channel/Tyler (sic) Swift deal is performance based. “That saves Clear Channel money because it doesn’t have to pay Swift if her music doesn’t attract any listeners. Digital radio providers such as Pandora and Sirius have to pay royalties every time they play a song, even if the song generates no revenue. That makes digital music a black hole into which cash disappears, rather than a revenue generator.”
This is one person’s opinion – and yes, he opted to stay anonymous, but I’m thinking it will ring true for many people, and not just those who wish that Pandora would simply go away. In broadcast radio, we are not used to thinking that customer acquisition is expensive, as it is with pure-play Internet brands.
So the next time your neighbor, Greg, tells you how cool Pandora while you’re hanging out at the neighborhood barbeque, you might want to remind him that there’s more to being successful than looking and sounding cool.
A great business model helps.