Pandora Vs. The Artists: A Compromise To Save Face & Money

AAn open letter to Pandora & the Artists, and the foundation for a dialogue on compromise.

Pandora formed a partnership with the artists, when they were still a collective of entrepreneurly minded music theorists. Now Pandora is publicly traded and pressure to hit quarterly goals and grow the business is higher than ever. Pandora’s business relies heavily on audio ads, as it is the only fully scalable business model available due to unconnected experience of radio. Audio ads are difficult to monetize, however. Pandora’s current model features ads for companies like Lexus or Target. These audio ads are largely viewed as bothersome, on the basis that many people think they disrupt the listening flow with foreign and irrelevant information. Audio ads, therefore, cannot be aired very often without losing loyal customers. This creates a problem, how can Pandora increase revenue to keep their shareholders happy, yet still maintain a healthy and favorable partnership with the artists? Before we talk compromise, lets analyze a few of the Artist’s most pressing problems and the grounds for their unified protest.

Pandora Vs. The Artists

Pandora Vs. The Artists

The music industry has been in decline since Napster arrived in 1999. It is an entirely new landscape since the digitization of music. U2’s manager claimed, in an article for GQ, that 95% of music is stolen. This is a sobering reality for artists and labels. With music sales stifled by pirating, artists rely heavily on touring to supplement their income. Funding partners are spending less money on promo with little hopes of recouping and even less hopes of a return on their investment without their primary source of revenue, music sales. The result is a drastic decline in the overall marketing reach for new music, concerts, and other merchandise. In addition, the principal marketing funnel through traditional radio has lost ground to on demand iPods, smart phones and online streaming. Without this important funnel, it is harder than ever to market music. With such a small economic foothold, it is not hard to imagine why the artists have unified to protest lower Internet radio royalties. What if Pandora could solve a marketing problem for the music industry, help them increase revenue, and increase their own bottom line in the mean time? Let’s talk compromise…

What if Pandora raised the white flag on royalties, and instead launched a new business model that fills a huge marketing gap for the artists? Since Pandora has to rely on audio ads, why not sell them to the artists (for a reasonable price and/or a reduced royalty rate). Users would welcome audio ads from the artists they like, allowing Pandora to play them more often. Let’s not forget, most of us would go see our favorite artists, when they came to town, if we knew they were coming. Sadly, I miss concerts all the time. They come and go without me ever knowing, and I imagine I’m not the only one. The same goes for new music. I rarely hear about new releases in time for the opening week. I’m usually a month or two behind, at least.

Pandora could allow artists to create short audio ads promoting each stop of their tour, and then target the ads geographically. They could also create short audio ads promoting upcoming music releases. The ads could run after their songs played in the tone of, “Hi, this is Taylor Swift, thanks so much for listening to my music. I will be in your city on Dec 21st, don’t miss it!” or “Hi this is Beyoncé, my new record drops January 15th. I’m really proud of it and I hope you like it!” Pandora could also link to retailers like Ticketmaster or iTunes while the ads play, help the artists drive sales and take a referral royalty for them. It’s a win/win. Pandora increases revenue and the artists gain a new marketing funnel targeted to their fans and in the cities they tour. Plus, the longtail of artists could buy ads on a price per play basis allowing them to independently market themselves.

In the end, the partnership between Pandora and the artists is important, and it needs to be nurtured. A mutually beneficial business model is the bridge to that end. The Pandora collective might have grown to the heights of Wall St., but their mission and culture should remain the same…

To enrich people’s lives by enabling them to enjoy music they like and discover music they’ll love… [and,] just as we [Pandora] value music we also hold deep respect for those who create it.

There is still money to be made in music if the marketing message had a better funnel. Could Internet radio be that new funnel? Use the comments to tell us (and Pandora) your thoughts! Do you agree there could be a compromise, even if it is not this one? If you have your own ideas, don’t hold back!