Pandora is currently suing BMI songwriters over the rate it will pay for the next 4 or 5 years.
Pandora wants to pay 1.75%. BMI songwriters would like them to pay 2.5%. In 2014 Pandora paid BMI $16.1 million dollars. So basically Pandora is using the entire apparatus of the federal courts to get a reduction of less than $7 million dollars in 2015. If it’s a 4 year deal that means Pandora saves $28 million dollars (Pandora growth has virtually stopped). Court cases like this have typically cost the parties tens of millions of dollars. This does not include the millions it costs taxpayers.
But let’s look at these numbers in context to see just how ridiculous this case is.
(source for all of these charts are SEC filings and court testimony)
Pandora revenues in 2014 vs amount paid to BMI songwriter revenues
BMI represents about 48% of all songwriters
Pandora executive “stock compensation” vs royalties to BMI songwriters 2014
In 2014 Pandora paid $87.1 million dollars to executives in “stock compensation.” In 2015 they plan to pay executives another $122 million. By the end of the year will they have paid out over 1/2 a billion dollars to executives and investors in stock compensation.
Pandora 2014 net loss compared to executive stock compensation and royalties paid to BMI Songwriters.
So if you were running a company that lost 30.41 million last year and you were seeking savings what would you do?
1) spend tens of millions of dollars suing BMI songwriters to “save” $7 million
2) would you maybe cut some of the $122 million in 2015 executive stock compensation?
Smells Like Teen Enron
This is totally batshit crazy right? I mean this is more like something a petulant teenager would do ( I have a couple). “I’m so mad at those songwriters I’m gonna sue them even though it doesn’t save me any money.”
So is Pandora behaving like a petulant teenager or is there something more sinister afoot?
When something doesn’t make sense one should always entertain alternative hypotheses to try to figure out what’s going on, right? So why might Pandora management being pursuing and publicizing this high profile scorched earth strategy with songwriters and the music business?
One possibility is that they don’t want anyone noticing that the company would be profitable without the wildly excessive executive stock compensation. By my rough reckoning Pandora would have made a profit of $56.7 million dollars last year without the executive stock compensation. The BMI and ASCAP songwriter lawsuits provide a false narrative as to why the company is unprofitable: “Those damn greedy songwriters”. And it has worked! With most of the financial press and even the major music industry press uncritically regurgitating this false narrative.
It also distracts from the fact that the executives and investors are sucking the life out of the company. By the end of 2015 they will have extracted over 1/2 a billion dollars from the company!
So let’s have a little fun here. if you were forced to bet on this: