10/11

Pandora, Lefsetz, and Common Sense

Every now and then I read something which is so totally off the wall it demands a thoughtful response.

So it is with Bob Lefsetz’s recent screed on Pandora.

Lefsetz, who is more a lightning rod than a beacon for insight, is a former music industry exec who has so many chips on his shoulder, his shoulders are virtually all-chip.  WIRED described him thusly: “Blogger (and digital-era pamphleteer) Bob Lefsetz couldn’t make it in the music biz—until he started ranting about how it should be run.”

Lefsetz writes:

Tim Westergren is not running a music service, but a religion. He expects his flock to follow him blindly, leaving their minds behind, all with the goal of lining his pockets.

He owns stock worth double digit millions, yet he’s complaining the company’s getting screwed. Who does this resonate with? Certainly not artists or listeners.

Hey Bob, if Tim’s stock is worth anything it’s because the marketplace believes his company will one day make money.  Something infinitely more difficult in the presence of the labels’ industry-killing rights fees.  The long-term viability of this and other businesses like it will certainly resonate with artists and listeners, alike.

By the way, any compelling brand has the characteristics of a religion.  Ask Apple.  Ask Nike.  Ask the major political parties. Ask Harley Davidson.  This is called “being a compelling brand.”

Anyone who has ever met Tim Westegren knows that “lining his pockets” has never been his professional driving force.  And such a charge from someone who (occasionally) speaks for the music labels is not without a plentiful helping of irony.

Look, there is no question that the license fees which burden all companies streaming music content are extraordinarily onerous. This is a conversation I have with someone in the space almost daily.  What Tim and others in the space are seeking is a playing field that allows innovation to thrive for the long-term benefit of the labels, the artists, the radio space, and its consumers. Nurturing this industry for their own selfish long-term benefit should be a top priority for both labels and artists.

Lefsetz:

What [Westegren is] saying is if you let me pay less, the sphere will grow and you’ll make tons more money! Never mind that this is anathema to Pandora’s shareholders.

This is ludicrous and indicates a lack of understanding of both capitalism and macroeconomics.  Pandora’s shareholders want profit.  And more Internet radio means a healthier ecosystem which increases profit.  The pie gets bigger.  And it sure beats the kinds of losses which happen when content owners strangle the proverbial baby in its crib.  How much do shareholders like that scenario?

Lefsetz:

So, Tim Westergren doesn’t own the pipeline, doesn’t have to design and manufacture hardware (much less convince auto manufacturers to install it) and doesn’t pay for upkeep on a network of satellites?  Cry me a river. Tim’s got a fraction of the costs of his competition, but he wants the same deal. A level playing field? Tim wants full-blown TILT!

So now it’s the job of the music labels to charge more or less for content depending on how much money a licensee has to put into towers, hardware, and satellites?  Really?  So you’ll cut the rates for businesses whose expenses are high – as long as those expenses are not for music?  That’s crazy talk. Value comes from the presence of consumers, not the presence of capital expense.

Lefsetz:

If it’s all about money, why doesn’t Pandora add some commercials.

Because it’s not all about the money.  But it is about providing an experience that satisfies consumers which is also profitable and sustainable as a business. As every radio broadcaster knows, adding more and more commercials is not the answer to giving the consumers (let alone advertisers) what they want.

Lefsetz:

Now Tim Westergren wants to push the creators down to help him.

Sure, creators want to make a living creating, but making a living means serving a marketplace that demands and can pay for your content in the first place.  Remember when every Kindle book cost $9.99?  That was to kick-start the market.  Know why small businesses run Groupons for 80% off? That’s to kick-start the market.

Ask yourself this question:  Will creators be better off with more Internet radio exposure or less? More distribution for their songs at no cost to consumers or less?  More paths to more fans or less?  More ways to discover content or less? The shortest path between a music hobby and a music career is free distribution at scale.  So any business model which fosters the ability for new industries to provide that free distribution while monetizing their service profitably at advertiser expense is a boon to content creators and fans alike.

And it’s a boon to labels, too.

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