Should Pandora Steal The Sirius XM / Springsteen Idea?

| About: Pandora Media (P)

Despite its relative lack of aggressive innovation, there's one thing that Sirius XM (SIRI) has been able to pull off that's as impressive as just about anything I've seen go down in the media and music businesses. I'm not sure what the company pays for the privilege, but it has a deal with Bruce Springsteen that's pretty much unprecedented in its scope. It's a sweet deal that, for whatever reason, does not get much attention.

Bruce Springsteen gives Sirius XM free reign on the company's E Street Radio channel. It's not just that Sirius XM plays everything Bruce has ever recorded, including deep cuts and unreleased tracks, but it has the authority to spin, as far as I know, whatever it pleases from the vast "collection" of old and new Springsteen bootlegs. Bootlegs are unauthorized, usually fan-produced, recordings of an artist's live performances. This makes E Street Radio a must for many Springsteen fans and offers new and casual followers the opportunity to "discover" plenty of what they otherwise might not find.

Why does this matter to investors in SIRI, Pandora (P) as well as others in the broad audio entertainment space?

I see what we'll call the Sirius XM/Springsteen model as something others, if not Sirius XM, should try to duplicate with two sets of musicians - established acts like Springsteen and artists searching for a break. Consider the following from an article that ran in The New York Times over the weekend:

For music fans, more and more consumption these days happens through online streaming services like Pandora, Spotify and TuneIn. But when it comes to live shows there's not much out there. For the most part, only big festivals and promoters have had the resources to send as-it-happens audio over the Internet.

That may be changing, however, as more musicians like Ryan Montbleau experiment with streaming on a budget. Mr. Montbleau, 34, is a typical journeyman musician, leading his group, the Ryan Montbleau Band, in feel-good retro funk for about 200 club dates a year.

Since January, he has been webcasting all of his concerts live ... So far the online audience has numbered in the dozens, Mr. Montbleau said, but it's growing fast.

"The other night we had more people listening to the stream than were at the show," he said before one recent show in Manhattan, as the band's sound engineer tweaked the levels during a sound check.

It is relatively rare for bands like Mr. Montbleau's to use such audio streams. The Web site Daytrotter, which makes stripped-down recordings with touring bands, beams live sessions to registered members.

This is where a company with cash it apparently does not know how to spend (Sirius XM) or the dominant player in online streaming (Pandora) should come in. By duplicating the Sirius XM/Springsteen model, a company like Sirius XM or Pandora could capture new audiences, reinforce ties with current key demos and, of equal importance, create a potentially meaningful new line of revenue while providing itself more leverage in the music royalty wars.

Consider how Pandora could structure something of the sort. I use Pandora as my narrative specimen because (A) I think the company is more likely to take such a chance and (B) it already fashions itself as the outlet for musical "discovery." That's why people use Pandora; to not only listen to what they like, but to gain exposure to stuff they never even knew was out there.

Pandora - or another player - could partner with unknown acts like Montbleau, established local and regional musicians and worldwide mega stars on par with Springsteen to expand on the Sirius XM/Springsteen model in a major way.

I would like music buff and royalty expert Mick Trivane to chime in on the feasibility of all of this from a royalty standpoint, as I see things stacking up differently in sets of specific cases. It's more than conceivable, however, that Pandora could offer, a la carte, premium subscriptions to artist-specific radio.

For example, today you can tune into Pearl Jam radio for free on Pandora and enjoy a customized station that gives you a little bit of Pearl Jam and puts you on a path to discovering other music you might like. The station you could opt to pay an additional fee for would be bootleg-heavy and could include streaming of live performances as well as regular talk shows with music critics and others associated with a particular singer or band. As presently structured, the Sirius XM/Springsteen model does all of the above, although it's light on the streaming of live performances, having only aired one concert as it happened as far as I can recall.

This type of model, particularly with relation to local and regional bands, seems to fit ideally with Pandora's ability to target its users on the basis of geographic location and musical taste. The company has already filled venues in places like Portland with fans of emerging local artists, such as Dawes. Fellow Seeking Alpha author Spencer Obsborne wrote an excellent article late last year detailing Pandora's powerful local approach:

Pandora has announced the launch of a series of free concerts which will be available to Pandora listeners based on their likes and dislikes ...

Invitations for the series are being sent out based on the preferences of Pandora listeners. The company will use the stations you have created along with your "thumbs-up" and "thumbs-down" to determine the status of invitations. A move like this ensures that users interact with the service, a big component to consider as music is becoming more and more social ...

By example, according to the company, Portland-area listeners are 25% more likely to enjoy a Dawes song and 30% more likely to create a Dawes station on Pandora than listeners in any other U.S. city. Not only can the company improve in this manner, but they can also attract top-dollar advertising that is targeted. Pandora has landed Budweiser as an official sponsor for the Dawes event.

Imagine what it could accomplish by approaching big names as well. And there's no question that stars ranging from Springsteen to Eddie Vedder to a whole host of indie bands would love to kick the establishment in the teeth. Consider how Springsteen handled a San Francisco date back in 2003-04:

The Springsteen dates developed suddenly last week after the New Jersey rocker decided to book two West Coast stadium shows on a weekend when he was originally scheduled to be off.

"In the last few days, it came together," said Pat Gallagher, president of (San Francisco) Giants Enterprises, "coincidentally, when Gregg left the company. Our relationship has really been with him." Springsteen also avoided working with Clear Channel in his past two Bay Area appearances ...

"There is a segment of the industry looking for an alternative, a different way to do business," Perloff said. "Artists are independent by nature. They like to be involved in their destiny, and a number of people are looking for a different way to do business."

"Gregg" is Gregg Perloff, who left then Clear Channel-owned (CCMO.PK) Bill Graham Presents to start Another Planet Entertainment. Since the Springsteen coup, Another Planet has become somewhat iconic in the Bay Area, scoring shows with names ranging from Tom Petty to Radiohead. Plenty of artists bypass Clear Channel spin-off Live Nation (LYV) to work with Another Planet.

With that story in mind, on shows from small to large, why wouldn't Pandora consider taking over several parts of the live concert process - booking, advertising, promotion, ticket sales, live streaming broadcasts and availability of post-concert streaming bootlegs? It could become a cash cow of epic proportion, however Pandora would take care to position itself as, and stay true to a reputation of being, an alternative to hated brands such as Live Nation's Ticketmaster.

Pandora's stock is getting beat up again today, down roughly 4.5%, as of early Monday morning. Despite my long-term bullishness, this near-term weakness is hardly a surprise. As is often the case, the market wants results today. And that's fine, but, as a speculation, Pandora represents a potentially solid opportunity for investors looking to scale into a long-term growth story with infinite possibilities to expand, diversify and build its already-dominant brand.

Disclosure: I am long P.

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