#irespectmusic Hits the Road: Blake Morgan Campus Talks on the #irespectmusic Movement and Artist Pay for Radio Play

April 26, 2015 Leave a comment

Blake Morgan has taken the #irespectmusic message out on the road–the way we all know how to sell ourselves and our records.  Blake’s going to finish his Spring 2015 East Coast college tour in Toronto at Canadian Music Week on what is sure to be a noteworthy panel on May 8 with Blake, Zoë Keating and author and columnist Scott Timberg (author of Culture Crash).

It’s important to remember that only a few years ago, there may well have been some hesitancy to host anyone who was pro-artist rights on many U.S. campuses.  If this was due to anything, the genesis of this strategy can be traced back the Napster litigation PR strategy to encourage the mob to savage Lars Ulrich and Metallica.  Thanks to many artists standing up for the inherent value of artistic innovation, those days are clearly gone.  I would suggest that this is in no small part due to the #irespectmusic movement but it really has everything to do with you standing up together and rejecting the bad old days.

That reaction is inspiring but even more inspiring for me is the reaction of the students that support the #irespectmusic movement and artist pay for radio play.

I asked Blake about his reception by these students:
Regardless of the city each of these #IRespectMusic talks has been in, or the university that’s invited me, there’s been a clear and wonderful constant. Everywhere I’ve gone, the students are brimming with energy, excitement, engagement, and righteous outrage at the current landscape for American music makers. And they’re either already involved in the #IRespectMusic movement, or pumped and eager to be, following the presentation. They’re handing out fliers, holding concerts, putting stickers on their guitar cases, posting photos, contacting their representatives. Any and everything they can do.
Sometimes they’re young music makers themselves, hoping to explore and succeed in their own musical lives. Sometimes they’re law students, humorously “face palming” at the embarrassing behavior of big companies towards American music makers. These are emotional trips, emotional talks, and powerful to be a part of. These students will not be stopped. They’re so inspiring. And they’re standing up for their piece of the American dream.

Blake’s recent campus talks include Temple University, Syracuse University, NYU, American University and Georgetown.  Don’t forget to sign the petition!


Temple University

11060109_10152829526058870_6417907474794313242_oBlake and legendary producer and Phil Nicolo at Phil’s Temple University class


Syracuse University


Georgetown University


NYU Clive Davis School


American University

World Watch: Author John Degen’s Seriously Must Read Post “5 Seriously Dumb Myths About Copyright”

April 26, 2015 Leave a comment

Canadian author John Degen (@jkdegen) wrote a funny and informative post that I recommend to anyone interested in artist rights and copyright, “5 Seriously Dumb Myths About Copyright.”  And this means you, journalists–especially you journalists who uncritically write to the press release from the Electronic Frontier Foundation or the sainted Creative Commons.

John’s post has been widely distributed (was the #2 most read post on Medium), but if you haven’t read it, please take a few minutes.

We’ve known John for years, but in case you don’t know his background:

John Degen is a novelist and poet. He is Executive Director of The Writers’ Union of Canada, an organization representing more than 2000 professional authors. He is also Chair of the International Authors Forum, which currently represents close to half a million professional authors worldwide.

Attention Bands and Bloggers: Link to Your Local Indie Retailers and Be Good to Them When It’s NOT Record Store Day

April 25, 2015 Leave a comment

There’s an inclination on the part of bands and bloggers to use links to Amazon or Apple for fans to buy your records.  Here’s a thought:  Try linking to someone who gives a shit whether you suck air and who doesn’t spend tens of millions of dollars trying to fuck you in Washington?  Think that might be a better idea long term?  (And as we’re seeing play out in Canada, not just Washington, but Ottawa, London, Brussels and indeed around the world.)

I link it to Waterloo Records, my local indie record store which has a good online ordering operation.  I bet you have an indie record store, too.  Why don’t you link to them on your website?  When was the last time you did an in-store at Amazon?

And if you don’t have an indie store in your area, feel free to use Waterloo.  Texas wants you anyway.  But you don’t have to give into the inclination to link everything to Amazon.  Your indie record store offering online sales is perfectly capable of drop shipping CDs or vinyl to your fans or downloading you an mp3, and they will appreciate the business.  It’s better for your local economy, too.  There’s plenty of data on the multiplier effect of buying local.

An added plus:  They answer the phone and they know WTF they are doing.

Just a thought.


You Say Registrar I Say Register: Truth in the Land of Plenty

April 24, 2015 3 comments

A quick update on the Canadian copyright extension for sound recordings:  The magisterium of the professoriate in Canada is equivocating yet again on the difference between artists who write songs and artists who don’t and misleading the public in the process.

I know that’s a shocker.  While you recover, a quick detour on the difference between a songwriter and an recording artist.  Yes, at a certain level of generality, both are called “artists”.  But in these discussions, the two are treated quite differently.

In Canada, songwriters get a term of copyright measured by their life plus an additional 50 years.  If you consider an average life expectancy of 80 years, that’s 130 year copyright term.  For all you Statute of Ann fans out there, I realize that’s a good long time and that you would prefer a copyright term of the life expectancy of the average indoor tabby.  Newsflash: That ship has sailed.

Sound recordings in Canada, on the other hand, have a fixed term essentially measured from release date for conversational purposes.  That term was 50 years and soon will be 70.  Not 130.  Roughly half.

Songwriters typically retain at least 50% of their songs’ income as the writer’s share and often get more if they have a co-publishing agreement and even more if they have only an administration agreement.

Artists, on the other hand, get a royalty of something between 1/8 to 1/4 of a number that you can think of as the wholesale price.  There are a bunch of lawsuits right now about digital–those lawsuits seek 50% for digital and are being settled.

Unbelievably, I’m reading a bunch of attacks on Canadian artists like Leonard Cohen and Randy Bachman, even Buffy St. Marie (seriously).  As more and more artists come out in support of the 70 year copyright term, the Canadian professoriate have an increasing number of targets to sling mud at.

But here’s the difference–in case they haven’t noticed, the professoriate needs to check their calendars.  It’s not 1999 anymore.  Artists are sick and tired of being told how stupid and greedy they are by academics who get a paycheck every week and who have the brass to tell them that they should be happy with their songwriter royalty–even the ones who aren’t songwriters.

These are the same kind of people who mock songwriters and want them to sell more t-shirts and who have very little daylight between them and Big Tech.  The consistent part is that when it profits them to do so, they bash the artists on the sound recording issues and then bash the songwriters on the musical composition issues.  And in between they want the government to regulate every breath we take.

The first time I met Gordon Lightfoot and Leonard Cohen was with the late Jesse Winchester at Montreux many years ago.  Many years after that, I worked with David Anderle to release “Tower of Song” on A&M, which is still one of the great albums.  I realize that these artists could care less what Michael Geist thinks of them, but it pains me to see them get bashed gratuitously by the self-appointed professoriate in their own country to further an agenda that is as close to Google’s as one is to two.

The comfort though is that it’s not 1999 anymore and as dozens of Canada’s great artists speak out, they give us all a lesson in courage.  I’m sure that their truth will prevail.

Like the man said, may the lights in the land of plenty shine on the truth some day.

PS to bloggers:  See what I did there with the link to buy “Tower of Song”?  I linked it to Waterloo Records, my local indie record store.  I bet you have an indie record store, too.  And if you don’t, use Waterloo.  Texas wants you anyway.  But you don’t have to give into the inclination to link everything to Amazon.  Your indie record store offering online sales is perfectly capable of drop shipping CDs to you, and they will appreciate the business.  An added plus:  They answer the phone and they know WTF they are doing.

Alex and Robert

April 23, 2015 Leave a comment

World Watch:  Canadian Government Closes Big Tech’s Back Door Loophole

April 22, 2015 4 comments

Canadian Prime Minister Stephen Harper’s government has announced that Canada will expand the current 50 year copyright term for sound recordings in Canada to 70 years. This brings Canada into the 21st Century and in line with its global trading partners. Expect handwringing from Big Tech and the magisterium of the professoriate, some of which has already begun, complete with at least some manufactured evidence worthy of Pandora.

Harper Government Acts to Protect Canadians from the Copyright Term Shell Game

The way you play the copyright term game internationally is to sell knockoff CDs or vinyl versions of classic recordings at super-budget prices in the country with the shortest term as those records flow into the public domain. Fans are confused by these records being sold side by side with value added versions (such as digitally remastered, 5.1 mixes, etc.).  For example, two titles by The Beatles recently appeared at Canadian Walmart stores according to The Examiner:

Whether they are Canadian public domain Beatles releases is not known. Walmart customers who have purchased them have commented that the CDs were dubbed from recordings and are terrible quality. “Audio is horrible! Wouldn’t want it even it was free!,” one said about “Love Me Do.” “Subpar quality. Save your $5 and put it towards REAL Beatles recordings,” said another.

There’s also a good chance that the same game can be played digitally at least with recordings ripped from old analog copies (but probably not with later digital versions that enjoy renewed copyright term).

An announcement yesterday by Prime Minister Stephen Harper’s government on Canada’s new copyright term is a great move for all featured and non-featured artists, their record label partners–both majors and indies–and independent artists who own their recordings.  As the announcement says:

The mid-1960s were an exciting time in Canadian music, producing many iconic Canadian performers and recordings. While songwriters enjoy the benefits flowing from their copyright throughout their lives, some performers are starting to lose copyright protection for their early recordings and performances because copyright protection for song recordings and performances following the first release of the sound recording is currently provided for only 50 years. [According to a Canadian IP expert, the change should go into effect before the summer.]

Canada has long had a shorter copyright term for sound recordings than most major economies. The U.S. is 95 years, the EU is largely 70 years but Canada’s has been 50 years.  This means that recordings made before 1965 currently are in the public domain in Canada and more will become available for resale by fast buck operators with each passing year.  Looming victims: Recordings of “These Eyes,” and “American Woman”, the massive hits by Winnipeg’s Guess Who. Followed by  Bachman Turner Overdrive’s iconic hits “Taking Care of Business” and “Roll On Down the Highway”. Then Bryan Adams’ records will start, and so on.

“Thank you for recognizing all that the performers and producers put into creating music and their continued need to be recognized for that effort 70 years later. The government’s Budget 2015 amending the term of copyright is very much appreciated in the music community.”
– Alex Lifeson (Rush)

As we’ve seen with Pandora and SiriusXM in the U.S., these streamers refuse to pay pre-72 artists because the records are not afforded federal copyright protection. We can only assume that Big Tech digital services operating in Canada will also refuse to pay artists for any works that would have fallen into the public domain if it were not for this latest protective move by the Canadian government. Fortunately, extending the copyright term to 70 years will forestall these classic records from falling into the hands of fast buck operators. But you can expect the full court press by Big Tech lobbyists and their allies to start a drum beat to oppose the extension.

The Yank is Silent

Michael Geist of the Samuelson-Glushko Canadian Internet Policy and Public Interest Clinic at the University of Ottawa, aka the Lessig of Canada, has already started the handwringing and jingoism about Harper’s desire to bring Canada into the 21st Century. I would say he does a brilliant job of making the losing argument (yet again) but this time he really doesn’t even do that. In a curious tweet that seems to have been deleted, Geist initially seemed to misread the Government’s position as being extending the Canadian copyright term to life plus 70 rather than the straight 70 year term:

I guess he’s gotten squared away on what the language in the Government’s policy actually says. In a blog post, one of Geist’s major arguments against the Harper Government is that when Europe passed their copyright term extension, some countries voted against it. Now there’s a shocker–no unanimity?  Say it ain’t so! But it is exceptionally odd how he finds support for his argument that good is actually bad:

With many more studies and reports reaching the…conclusion [that extending the copyright term is always bad] (see here, here, here, and here) – some [studies and reports] estimating that the costs to the public would exceed one billion euros with 72 percent of the benefits record labels – the issue unsurprisingly proved very controversial in Europe. The European Union ultimately passed an extension from 50 to 70 years in 2011, but not without significant opposition from member states. Eight countries – Belgium, Czech Republic, Luxembourg, Netherlands, Romania, Slovakia, Slovenia and Sweden all voted against, while Austria and Estonia abstained.

We’ll come back to these “studies and reports” momentarily.   I guess that what Geist is saying is that a majority of European countries rejected his point of view? Not sure…. Another of Geist’s arguments against the Harper government is a lack of “studies” (and we know how the academics like their studies, especially when they get paid to produce them by their cronies in the bureaucracy).

So let’s look at the “studies and reports” that Geist cites in his usual cascading series of unquoted links marshaled to support his own conclusion, the “here, here, here and here” I quote above. Here #1: An academic paper presented at the Fordham IP conference. Not a study and not a report.  It becomes “analysis from EU experts” on Twitter…so which is it?

Here #2: A letter to the editor from Open Knowledge (funded by 2 of the same funders as Creative Commons). Not a study and not a report.

Here #3: A joint academic statement. Not a study and not a report.

Here #4: A law firm blog post that was reposted in The Register quoting one of the academics in Here #3 and a lawyer at the law firm that writes the blog. Not a study or a report, but seems like classic astroturfing to me.  I haven’t seen any reposts from Out Law on The Register lately.

Geist’s quote about the billions and billions seems to come from the law firm blog post that was reposted in The Register, especially the following part of the law firm blog post:

Martin Kretschmer, director of Bournemouth University’s Centre for Intellectual Property Policy & Management said that record companies will garner far greater benefits from the change than small-time artists and called the decision to approve the changes “a dreadful day for musicians and consumers”. “It is not surprising that many performers’ organisations and collecting societies support the Directive,” Kretschmer said in a statement [link in the original which is not to any statement, but to an advert for a roundtable with Kretschmer built around another professor flogging a book against copyright]. “They do not have to carry the costs – which will exceed €1bn to the general public,” he said. “Seventy-two per cent of the financial benefits from term extension will accrue to record labels. Of the 28 per cent that will go to artists, most of the money will go to superstar acts, with only 4 per cent benefiting those musicians mentioned in the [Council of Ministers] press release as facing an ‘income gap at the end of their life times’. Many performers also do not appear to understand that the proposal would lead to a redistribution of income from living to dead artists,” Kretschmer said.

Say what? Of course, in a trick worthy of David Blaine, somehow Professor Kretschmer, an academic in Bournemouth, knows the terms of all the legacy record deals in the world to come up with his 72%/28% split—but leave that to one side. This becomes a “UK study” in Geist’s twitter account:

The point is that Geist The Sea Lawyer cites to “studies and reports” but doesn’t cite one study or one report, unless he is imagining in his mind a study that is very different than anything he’s ever been paid to produce. Or maybe not….

A Lesson in Astroturfing (Updated 4/24/15)

Geist’s CIPPIC acolytes are out talking to the press, apparently.  In a piece quoting one of the acolytes published in the National Post, Ishmael N. Daro perpetuated the quote from the Pinsent Masons’ blog “Out-Law” linked in Geist’s post–remember that one from Here #4 and alternatively identified by Geist as one of the “studies and reports” and as a “UK study” on Twitter?

“It is not surprising that many performers’ organisations and collecting societies support the Directive,” Kretschmer said in a statement [link in original]. “They do not have to carry the costs – which will exceed €1bn to the general public,” he said.

So the implication in the Out-Law from the mega international firm Pinsent Masons and certainly from the description of it by Michael Geist is that extending copyright term in Europe would cost the public over €1bn and that Kretschmer’s number is backed up by a “UK study.”  This number then gets reported thusly in the National Post:

Studies on copyright extension suggest only a small portion of the revenue will flow to the artists, while also costing the public billions of dollars in the long term.

The link in the National Post is to Geist’s blog post in which he quotes the Pinsent Masons post that was reposted on The Register years ago and states that it supports Geist’s proposition that extending the copyright term in Canada for sound recordings by 20 years will cost “the public billions of dollars in the long term” as now is reported in the National Post.

So it must be true, right?

“I’ve been making music since the early 1970s. Term extension is a huge relief – in just a few short years I thought I would start to see copies of my work and no revenue. Not anymore, thank you PM Harper.”
– Myles Goodwyn [wegotchur back Myles]

Not so fast…if you work backwards, Pinsent Masons links to a “statement” that supports their quote.  That statement is a link to an advert for a panel at Bournemouth in which Kretchmer participates but has no statement from him.  So where did it come from?  Surely the fact checkers at the National Post know, eh?

You really can’t tell from the Pinsent Masons post that was reposted in The Register.  Is this odd?  Not really.  When you look at the Pinsent Masons website, Out-Law is described thusly by the Pinsent Masons’ website, followed by the smiling faces of two “journalists”, one “editor” and an “Out-Law Consultant”:

Our Out-Law Team

Key people – at your disposal

These are our key people.  They are all at your disposal, individually and collectively.  Between us, we will put together the team bespoke to your needs, in terms of our expertise and your geography.

Yes, Pinsent Masons’ “key people–at your disposal.”  Whatever you desire.  That’s a bit different editorial policy than say…oh, say the National Post.

So then…give Geist the benefit of the doubt and let’s look behind door Here #3.  This is the joint academic statement of which Kretchmer is a participant that Geist calls a “study and report”.  In that statement, there is a footnoted reference to “M. Kretschmer and P. Hardwick, Authors’ Earnings from Copyright and Non-Copyright Sources: A survey of 25,000 British and German writers (2007)” (footnote 8 for those reading along).  Maybe this is the source of the billions and billions quote?

Unfortunately, no joy.  This was actually a survey that was commissioned by the Authors Licensing and Collecting Society in the UK and that has since been updated.  Also–whatever conclusions it reached had nothing to do with the music business at all, and certainly not sound recordings.  However, Professor Kretchmer may be forgiven or at least given the benefit of the doubt for how he was quoted by Out-Law as he may well have been speaking of the collecting society for authors–as in book authors.  As he did not participate in the updated study commissioned in 2013 by ALCS, he might not have been up to speed.  And there is no evidence that he has any idea that his old statement from the Out-Law blog is currently being used in what appears to be a completely unrelated context.

“We’re glad to see Canada extend our length of copyright protection to terms consistent with other artists in other countries.”
– The Sheepdogs

But who cannot be forgiven in my mind is Geist or the National Post.  This “billions” is clearly a plug number and if it is backed up by anything at all, it certainly isn’t the evidence presented which was originally given in a completely different context.  Or, in the case of the National Post, relied on.

And, of course, in turn the National Post article has already shown up in copyleft newsletters and of course the EFF website as authoritative (that’s the Google Shill List member EFF).  The “millions and millions” quote was repeated by another copyleft type that even showed up in a post on Billboard–who we expect to get it right, being the Bible of the Music Business and all.  Repeat–because a recording is in the public domain does not mean that the seller has to charge any particular price point–so it doesn’t necessarily mean the “public” pays less.  It definitely doesn’t mean that those selling the original recording now in the PD can stop paying artist royalties required by artist contracts for the records they do sell.  You think EMI stops paying royalties to The Beatles when the recording fall into the PD?

Of course, as the Beatles Examiner observed, the sound quality on knockoffs is probably going to be awful.  Why?  Because the reseller does not have access to the original master tapes–the physical object still owned by the copyright owner, at least in a capitalist system.  These knockoff titles will always be several generations away from the original and will have questionable packaging as well.  Some might say that ripping a CD to a digital file creates a “perfect copy.”  Trust me, it may sound perfect to some people, but it ain’t.

But this is the thing about astroturf–if it sounds like something they want to hear, some journalists just keep regurgitating it without checking the fact.  So we have the National Post, the EFF and Billboard drinking the Kool Aid.  Can the ORG be far behind?

Classic, classic astroturfing.

A Short Detour into Royalty Accounting

Here’s a hot tip for Geist and Kretechmer that they would know if either had ever sold a record or talked to anyone who had:  When consumers pay the retail price for a public domain recording, they don’t pay “royalties”: they pay…the retail price.  There’s nothing that requires a public domain recording to be sold at any particular price. It is the retailer, including the digital retailer, who should be paying the artist royalties in the form of the wholesale price. When public domain records are sold, no royalties flow to the recording artists. All the money flows to the retailer and the operator distributing the PD work.  That’s the point. That’s why the Big Tech companies are so infatuated with the public domain—it’s another way to get rid of payments to those pesky artists and make all the money themselves. So in typical Geist style, there’s just enough truth in his statement that he can’t be called a liar, but he leaves out some critical steps that would undermine his sanctimony.  Because dogma only works as long as you can’t see who’s behind the curtain.

And since Geist has brought up these Beatles knockoffs with the justification that Lennon and McCartney will still get their mechanical royalty as songwriters, why don’t we just check with CMRRA on that little fact.

“As artists, ownership of our music is almost like a retirement plan. It is great to see that by extending Canada’s copyright term, the government is protecting that investment”
– Triumph

Beware, the TPP Is Nigh: Astroturf and the Public Domain

Geist has a serious issue with the Trans Pacific Partnership—so do I, frankly, although for different reasons. But he’s kind of obsessed with the idea that the United States government is using the TPP to bully Canada into “caving” on the copyright term issue. I fail to see the basis for this jingo.  If Canada were extending the term from 50 to 95—matching the term in the U.S.–I’d say he has a point. But that’s just not happening.

What is odd about Geist working up the jingo over the Harper Government (apparently witless and cowering according to Geist) is that there are many overlapping American influencers from the Google Shill List on the external advisory board of Geist’s NGO base of operations, the Samuelson-Glushko CIPPIC.

The very name is oddly American—Samuelson is Professor Pamela Samuelson, the U.C. Berkeley academic, and Glushko is her technocrat husband Robert Glushko, the Silicon Valley tycoon and also a U.C. Berkeley professor. Evidently they bought the naming rights to CIPPIC. That’s right–the Canadian Internet Policy and Public Interest Clinic is now named after two Americans.  You would have a hard time finding a list of all the different Samuelson-Glusko clinics, but I believe that S-GCIPPIC is the only one outside the U.S.  The others I know of are at Fordham, University of Colorado, Boulder, American University and, of course, U.C. Berkeley that received $200,000 in the discredited Google Buzz class action settlement.  (See David Lowery’s critique of Professor Samuelson’s “Copyright Principles Project” in Politico.)

Not to mention that it seems to me that Samuelson and Glushko are each as close to Google as one is to two. So before Geist starts looking for Yanks Under The Bed, he should look in his own house first. That’s CIPPIC—the “yank” is silent.

Google started getting into the public domain in a big way around the Copyright Term Extension Act, the U.S. statute that established the 95 year protection term at issue.  Recall that Google’s boy Lessig (on the cozy external advisory board of CIPPIC) was handed the then-biggest defeat of his career before the U.S. Supreme Court in the Eldred case on this very issue.

In a fit of pique that is quintessentially Lessigonian, Lessig stamped his little foot and Google came running with a gigantic check right alongside the Omdiyar Network Fund (of Ebay founder Pierre Omdiyar) and other Big Tech luminaries to fund Creative Commons and other initiatives to undermine copyright and expand the class of works that could be exploited without compensation to artists. Creative Commons 2008 Schedule B Lessig provided the unifying ideology and presto—the “public domain” chant became part of the catechism of anti-artist doctrine presented as dogma by the magisterium of the professoriate through the synchronicity of Big Tech money and academic “freedom to barter”—Saint Larry of the Googleplex and his Canadian cousin Saint Michael Geist of CIPPIC.  (For a detailed explanation of how Google works–to coin a phrase–with academics, see Public Citizen’s excellent report “Mission Creepy” that exposes Google’s influence spending in the U.S.–would that Public Citizen did the same for Canada and the EU.)

So nobody should be surprised that Geist is raising his hand to oppose Canadians extending Canada’s copyright term in Canada.

That’s Jingo: The Yank is Silent

Of course, Geist wants to try to work up a frenzy over the Trans Pacific Partnership.  Somehow in Geist’s mind bringing Canada’s copyright term in line with the rest of the developed world is “caving in” to the Americans. Why isn’t it also caving into the Europeans?

Why isn’t caving into the Brits the explanation that Canada wants to come into the 21st Century? Remember, the new 70 year term in Canada is not the same as the 95 year term in the US, but it is the same as the 70 year term in the EU. If Canada extended to 95 years, I could understand the jingo, but given that Canada matches the Europeans, I really don’t get it—except for one thing.

Running the jingo against the Brits, for example, must not play as well for Mr. Jingo as trying to stir up anti-Americanism. And of course, this is not the first time we’ve seen Geist dance the jingo.  This is in fact typical Geist jingoism, transmogrifying stopping loophole-seeking behavior into “caving to U.S. demands”.

What I don’t understand is why Geist is so unwilling to acknowledge that maybe, just maybe, his countrymen had an original thought when it comes to copyright.  Why on this subject is Canada always being pushed around and why does the Harper Government never act in the best interests of Canadians–at least in The Michael Show?

So, sorry Mikey—before you start the whinge, get your facts straight and at least do us all the courtesy of attacking the right straw man. And by the way—please don’t attack artists like Randy Bachman. It’s not a good look for you.

“Thanks for term extension PM Harper, you really are taking care of business.”
– Randy Bachman

Pandora is Not A Start-Up Anymore

April 21, 2015 Leave a comment

Two interesting Pandora stories broke in the last couple days:  Morgan Stanley projects a no-bubble price target of $2-$3 a share for Pandora with an “onerous” (meaning fair) royalty set in the Webcasting IV proceeding currently underway, and Roger Faxon joined the Pandora board.

According to analysis of Morgan Stanley’s stock analysis:

Swinburne noted that under the most bearish case, the CRB takes its existing rate structure (not Pandora’s current lower rate) and grows it 10 percent in 2016 and 5 percent per year from 2016 to 2017. This essentially eliminates any adjusted earnings at Pandora until 2021 and creates a funding need of around $350 million until reaching free cash flow positive. [“free cash flow positive” means that operating cash flow minus capital expenditures is a positive number–Pandora has never been free cash flow positive so not sure why this is the benchmark Morgan Stanley is using.]  Under this scenario, the analyst suggested shares of Pandora could be valued at $2 to $3 per share.

Just to inject a touch of reality here, Pandora has never been free cash flow positive since its IPO and may never have been.  So if it won’t be free cash flow positive until 2021 and hasn’t ever been–then why isn’t the stock valued at $2-$3 per share now?

If a company is trading at $17 a share and its true value is $2 a share, there’s something creating that $17 bubble price.  If it’s a true bubble, then it’s just more Dot Bomb BS.  So what could be creating that additional value?  To be fair, it is in part Pandora’s technology or the enterprise value of the company.  If that were true, then how does Morgan Stanley get to a $2 share price if Pandora’s statutory recording license was fully valued by the CRB?

So maybe what makes up that $15 per share delta is something else.  Maybe it’s the value of the music, both the recordings and the songs.

Maybe it’s the net present value of all the billions of promotion and marketing dollars, touring, merch, A&R and songwriting that artists, songwriters–the freaking effort–that has gone into producing the history of recorded music that the government forces us all to let Pandora use.  Remember–Pandora channels are created by users who already know who the artist is they seek.   How do users know that?  Because of Pandora?  Nope.  Because Bruno Mars is already famous because of Bruno Mars, his label, his songwriters, his publisher.

Let’s get this straight–what drives traffic to Pandora is the same thing that drives traffic to all these online companies.  Fans who are already fans looking for music by artists who they already know.  And the a priori reason that the recordings are popular is because of great songwriters telling compelling stories in new ways.

While we constantly hear how much promotion value there is from Pandora, let’s not forget that is a two way street.  Did Pandora start the music genome project with songs by unknown artists from pre-gentrification Emeryville?  No.  They started with the hits.  And they did that for a reason that did not cost them a nickel.  They did it for $15 of share value.

So let’s put Morgan Stanley’s $350,000,000 funding need in perspective.  At Pandora’s current share price, that’s about 21 million shares or roughly the share value of all insider trades by Pandora’s senior executives and board members.  So one reform that Roger Faxon could start with would be executive compensation–a topic he’s very familiar with from his EMI days.  Why are all these insider people making all this money when their company is actually at a $2 share price?

Most financial analysts look at Pandora’s royalty payments and think the payments are too high because analysts are trying to justify the continued existence of the stock they follow and–let’s face it–they are trying to flog the companies stock to customers.  The reality is that they are looking at the wrong cost item.

As Roger Faxon well knows, the way to get profits up is to get variable costs down–starting with executive compensation.  Royalties are the cost of an input and bring substantial promotional benefits essentially for free.

Bear in mind Mr. Faxon is not a manager of the company, so let’s not attribute to him executive powers.  But he certainly can sit across the table from Pandora’s CEO Brian McAndrews and tell him his salary is too damn high.  Because Mr. Faxon knows that if he’s going to ask songwriters and artists to share the pain, sharing starts at home.  Mr. Faxon knows full well that he has a long, long, long way to go to overcome the disaster that Pandora has created in the artist community and especially the songwriter community.

I firmly believe that I could add 5% to Pandora’s bottom line in an afternoon simply by cutting executive compensation in the senior management team.  If I can do that, Mr. Faxon should be able to find 20%.

If you are a student of history, you will remember that the Battle of the Somme–the most disastrous battle in the history of the British Army if not human history–actually had a plan.  (Churchill would have preferred “offensive siege” to “battle.”) Some generals somewhere actually thought this was a good idea. Just like someone at Pandora thought this debacle was a good idea.  Pandora is not a startup anymore, and it needs to stop being run like one.

So Mr. Faxon has a choice–either he can continue Pandora’s march to oblivion according to whatever battle plan their generals have cooked up and cash out as fast as he can before the bubble bursts, or he can start being a change agent.

You know–disruptive.


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