Artists and labels need to be careful which companies they cut deals with cause one never knows who will end up owning that company tomorrow. That dumb looking MERLIN “steering” deal with the struggling Pandora may look even dumber if Pandora is acquired by a company like Google.
I had a few inquiries Friday asking if I wanted to comment on the collapse of Pandora Media stock (-17.22 %). I passed because I didn’t really think the price of the stock was very relevant to artists. I mean Pandora is gonna continue resisting paying performers and songwriters fairly whether their stock is $35 or $12. Right?
But then I started to think about it from purely an equity/quant perspective. At $15 dollars Pandora Media is valued at just over $3 billion. One of the rules of volatility and quant trading is you don’t short a stock all the way down, because as a company becomes less valuable the “tail risk” or unpredictable/unexpected events start to accumulate on the upside. Usually because the company becomes a takeover or buyout target.
Now, let’s turn our attention to Google. Follow me here. You’ll be glad you did.
Now you know that Google is basically a one trick pony? Right? It’s a data mining firm that also sells advertising. This accounts for 90% +of its revenue. And let’s be honest. Data mining and user profiling is just what fancy Wall Street types call “spying.” Look at what Google does:
Google Search: data mining/spying/advertising
Chrome: data mining/spying
Google tracking device in your pocket (Android OS phones): data mining/spying
Google Maps: data mining/spying/advertising
Google Street View cars: data mining/spying. (literally–they got caught on that one)
Google Driverless Cars: data mining/spying
YouTube: data mining/spying/advertising
Google Glass: data mining/spying
Google for education: data mining/spying
Google Fiber: data mining/spying
(proposed) Google mobile phone service: data mining/spying.
Anything to do with drones and robots: data mining/spying
Google takes all this data and monetizes it through its web and search advertising.
Now recently Google’s core business, web and search advertising has come under pressure. So has their stock. The problem is that many mobile users are not searching using a Google search or even using a browser. Many users, especially young users have discovered you can get all internet has to offer through mobile apps. This puts millions of consumers out of the reach of Google’s data mining/spying/advertising ecosystem. And Google wants you to believe that apps are a threat to freedom and will break the Internet.
THIS IS AN EXISTENTIAL CRISIS FOR GOOGLE.
Aside from YouTube (and maybe Google Maps) Google does not have a killer app in the mobile world Pardon the pun. So how do they monetize the mobile web? They need more apps. Apps with lots of users. Things like Instagram, WhatsApp and SnapChat. But largely Facebook has beaten them to the punch. What’s left? Well there are music services. Spotify and Pandora? But Spotify already competes with YouTube Music Key and Google Play. So Google put a board member on Spotify. Hmm but not so much Pandora. Pandora, while not the shiniest hottest new app, is at least a complement to Google’s existing business. Google already has a lock on Pandora’s advertising through DoubleClick. And Pandora at $3 billion (really 2.7 billion since they have $300 million plus in cash reserves) is less than the variation in Google’s market cap on day to day basis.
$3 billion for Pandora’s 80 million users? Isn’t this a cheap way for Google to kickstart it’s transition to mobile?
And yesterday we learned that Pandora joined the Internet Association. Which is Google Facebook and Twitter among others. So they are already part of the club. And Pandora’s statement on the Copyright Office Music Licensing Study sounds just like Google already which would makes sense since Google already has Pandora by the balls through DoubleClick (see Pandora risk factors).
“(Pandora) would be open to supporting the full federalization of pre-1972 sound recordings under a technology-neutral approach that affords libraries, music services and consumers the same rights and responsibilities that are enjoyed with respect to all other sound recordings.”
Since when does Pandora care about libraries? Libraries is a Google “tell” after all the Google Books handwringing about the “digital library of Alexandria.” I’m sort of joking here. But I really do find the move to the Internet Association very curious.
So before artists and rightsholders start celebrating the collapse of Pandora’s stock, consider what a formidable foe Chris Harrison (Pandora counsel) would be if he was backed–or employed–by Google. It would really be the job he’s been auditioning for over the last 10 years.
Yep…Chris Harrison and Fred Von Lohman. There’s a match made in heaven…depending on your definition of heaven.