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Pandora CFO reckons he is finally placating the music community

By | Published on Monday 22 September 2014

Mike Herring

The CFO of Pandora has spoken to the Wall Street Journal about his attempts to mend relationships between his company and the American music community, the undeniably successful streaming service having come under fire from multiple corners of the music industry in recent years (think about the criticism Spotify was facing from some of the artist community last year, and then add in similarly angry outbursts from the labels and publishers).

Criticism of Pandora grew after its big bucks IPO in 2011, partly because the finances of the business were now easier to scrutinise, and partly because, with Wall Street to placate, the digital music firm had to be seen to be trying to bring down royalty costs that many investors reckoned were too high. But with Pandora licensing both recordings and songs via the collective licensing system, where rates are ultimately set by a court, the labels and publishers already reckoned the streaming set-up was getting their content too cheap.

Cue much public dissing of Pandora, much of which continues; moves by the major publishers to pull digital rights out of their collecting societies are in no small part motivated by a bid to increase Pandora royalties. Though recent direct deals between the digital company and indie labels group Merlin and nearly-major BMG suggest that it is starting to win some friends within the music community.

And CFO Mike Herring, who joined Pandora in February 2013, reckons that is because of a change of approach he instigated at the company. He told the WSJ: “[Musicians and record labels] are people we pay a lot of money to in royalties. [But] that doesn’t make us partners…just writing cheques didn’t make us partners. As a CFO it was central to my responsibility to change that dynamic. Without the music experience we wouldn’t have anything to play. We really needed to have a better relationship”.

Reckoning Pandora had, in the main, become a “scapegoat” for a music industry coming to terms with the rise of the streaming market, he explains: “We took the discussion about licensing and moved it from our legal department to my department, so the music copyright holders feel compensated and their businesses are gaining value over time”. The company tried to have more of a presence at music industry events, and to talk more to rights owners, artists and managers. “[And they begin to think] maybe Pandora isn’t all bad”.

That Herring has been courting managers is interesting, you sense that it was Pandora-dissing within the artist community that caused the most headaches for a firm wary of share-price-hitting bad press. And, as Spotify concluded when tackling its own high profile pop star critics, some of that criticism is based on all round confusion in the artist community as to how streaming royalties are calculated and paid, and ignorance of what other benefits the streaming business can offer the music industry.

Says Herring: “[Artists] get a cheque every quarter and they don’t know where the money comes from. Almost every artist conversation starts with ‘you don’t really pay for the music’. Once they understand the dynamic, their attitude changes very dramatically”.

I think many in the music community – rights owners and artists/managers – would argue that Pandora still has a long way to go in this domain, with its placating efforts not on the same level as the Spotify Artists initiative, though those recent deals might suggest Herring’s claims of turning a corner are not entirely unfounded.

Read the full WSJ Q&A here.



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