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Thursday, June 16, 2011

Pandora Is A Stupid Investment

Pandora had a much-hyped IPO. It is a stupid investment, doomed to failure.

Pandora streams music online and makes automated recommendations. Superficially, it seems like a neat idea.

The problem is copyright law. Pandora pays crippling high fees as royalties. As I mentioned in my post on BMI/ASCAP/SESAC, these fees are legal extortion. Pandora pays extortion tribute to SoundExchange, a music licensing organization explicitly established by the State.

Pandora as many crippling restrictions, as a concession to the State copyright cartel. For example, Pandora limits the number of times you may "dislike" a song per month. You can't play a specific requested song. In a really free market, *MUCH* more innovative businesses than Pandora would be possible.

"Music on the Internet" is a potentially neat invention. Copyright law makes it very difficult. Royalty rates are not negotiated by the free market, but via the State.

Media corporations lobbied for high statutory royalty rates and other restrictions, crippling Internet radio. "Music on the Internet" was a potentially neat innovation, but media corporations crippled it via lobbying and the State.

Suppose Pandora is very successful. Two years from now, media corporations could jack up their royalty rate demand. Pandora would have no choice but to pay or shut down.

There is one solution. Someone should develop a database of free music. There could be free performances of old public domain music. Some relatively-unknown artists could make new music and place it in the public domain.

If you have a contract with a big record label, you're barred from publishing music for free until the contract expires. If a big media corporation is actively promoting you, then you benefit from copyright. (Is Lady Gaga popular because she's a good singer? Is she popular because the mainstream media incessantly hypes her? Hype is more important than ability.)

If you're an unknown artist, then you might as well release music into the public domain. Your risk is that nobody knows who you are, and not that people will share your music without paying.

Given State law, Pandora is a stupid investment. Pandora is totally subject to the whims of media corporation royalty demands and State copyright law. I'd like to see a Pandora-like business focused on promoting royalty-free music.

To frustrate the State copyright cartel, unknown artists should release public domain material. In some other countries, it's illegal to directly release music into the public domain! Media corporation executives want a similar law in the USA. Current USA still law allows you to directly publish something into the public domain.

"Internet radio" was a potentially neat invention. It was crippled by insiders via copyright law. Pandora is subordinate to the State copyright extortion scam, making it a very risky investment. The biggest risk for Pandora is political risk, that the law might be changed or statutory royalty rates might be increased. In a really free market, businesses *MUCH* more innovative than Pandora would be possible.

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