Analyst: Congress Should Raise Pandora's Rates.
BTIG analyst Richard Greenfield has written an article debunking the theory that Pandora is being treated unfairly as Congressman Chaffetz points out in today's interview. Greenfield says it all has to do with the number of spots Pandora chooses to air. "The reason why companies such as Pandora pay such high royalty rates as a percentage of revenues is because they severely limit audio advertising to protect the user experience and keep people on the platform."
Greenfield calls the Internet Radio Fairness Act crazy. "Pandora chooses to not generate as much advertising revenue per streamed hour as it could to enhance the user experience and capture share from terrestrial radio (based on lesser ad load), satellite radio, and music downloading/playlist sites (iTunes). So Pandora is effectively asking the government to intervene and reduce its cost structure, helping it remain a viable business because it knows its business model only works while running limited advertising. Why should the U.S. government allow musicians to be harmed simply to help Pandora and its investors generate enhanced returns?"
Greenfield then makes an argument to keep the royalty rates on Pandora rising. "We continue to believe Pandora’s royalty rates should be increasing, not decreasing, which would force them to either increase the ad load and survive at that ad load (with likely fewer users) or find other ways of generating revenue to sustain their service. Pandora may simply need a new business model if it hopes to exist long-term."
Follow Rich on the web (Free registration is required) HERE
Follow Greenfield on Twitter @richgreenfield1
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