Wednesday, May 06, 2015

Pandora, South Dakota

The news stories about the Pandora purchase of 102.7 KXMZ-FM in Rapid City, SD (actually Box Elder) all missed a small detail. Why KXMZ-FM?  It's a 50,00 watt station in market # 255 of a possible 274.. a list bottoming out in Beckley, WV. Smaller than Texarkana, TX, and Battle Creek, MI; the market is a smidgen bigger than Altoona, PA. There are dozens of stations for sale if you care to look here and here. Pandora has the money to buy of them.. or all of them.

In February the stock price at Pandora tumbled to a low of $14.62 per share. Today it's back up to $17.99 on news that revenue continues to grow and losses continue to diminish but the fact is the company continues to be as much of a money pet as Spotify. Still, it's worth is just under 4 Billion dollars. The GDP of the entire state of South Dakota is 34 Billion for comparison. So they couldn't buy the entire state, but certainly most of Rapid City itself.

On May 4th the FCC granted Pandora Media permission to buy KXMZ from Connoisseur Media, LLC The sticker price was $600,000 dollars. I believe this is the first time a dot com has bought a radio station.
This was opposed by BMI, ASCAP, SESAC, musicFIRST, SAG-AFTRA, and NAB just to name a few. They had a collective histrionic shit-fit actually. The reason is that it will (possibly) enable Pandora to pay royalties at a lower rate. But they did manage to put together three cogent objections:
  1. Pandora may have failed to disclose all parties that will hold an interest in KXMZ
  2. Pandora may not have complied with the FCC’s foreign ownership limits
  3. Pandora’s publicly stated goal of lowering the their royalty payment indicates they won't operate KMXZ-FM in a way that serves the public interest.
Pandora is a publicly traded company [link] so the number of parties that technically hold an interest in KXMZ is in the thousands. This is mostly an semantic argument about the definition of "passive investors," vs. "share holders" and “investment advisers.” Depending on the amount of stock an individual or corporation may old from 5%-20% they may need to be disclosed. Pandora has time to get this done.

The FCC’s 20% foreign ownership limit for broadcast licensees is a less flexible. According to ASCAP, Pandora used shareholder addresses to determine their citizenship.  This might not pass the muster. ASCAP requested a statistical survey be performed. However, such a requirement opens the door to applying that same requirement to all media owners. It'd doubtful that this would occur without unintended casualties. ASCAP may find NAB on the other side of this issue.

The third complaint is just ASCAP giving Pandora the finger. Pandora was clear as to their goal of reducing their royalty costs. But their plan is to just pay royalties at the same rate as terrestrial broadcasters. They are not arguing for special rates, the lowest rates, or changing existing rates. They are attempting to enter the same level playing field as radio broadcasters under the existing rules. Why is that a problem?