Conservative groups dump on Pandora's royalty legislation

WASHINGTON, D.C.--It doesn't take a sophisticated algorithm to know that Pandora's pitch for a new music royalty rate has been a dud.

Pandora says Web radio services pay too much in music royalties and is backing the Internet Radio Fairness Act. If passed, this federal legislation would reduce the rate these streaming services would pay. Pandora gets another chance tomorrow to convince the public and lawmakers of the bill's necessity during a hearing before the U.S. House subcommittee on Intellectual Property, Competition and the Internet.

The music industry, which will also send representatives to testify at tomorrow's hearing, is using its big guns against the bill. Not only have a large number of artists, including Rihanna and Katy Perry, come out against it, but now even conservative think tanks are criticizing the legislation.

The American Conservative Union, Citizens Against Government Waste (CAGW), and Taxpayers Protection Alliance have all written letters opposing IRFA. The groups don't believe the free market needs any government help in this situation.

"While we agree with the basic premise that all [digital radio] services should be treated equally, it should be under market-based standards," wrote Thomas Schatz, president of the CAGW, in his letter to members of Congress. "It is imperative that Congress protect intellectual property rights, and allow the free-market to work in pricing negotiations."

Maybe Pandora's managers saw big tech companies rout the Stop Online Piracy Act (SOPA) and thought Washington politics would be easy. SOPA was crushed last January when the opposition was able to rally public opinion by painting it as a threat to free speech So far, Pandora's pitch about IRFA -- that it will benefit music and tech companies by creating more jobs and opportunities -- has fallen flat. And in the case of SOPA, opponents were able to send Republican supporters running for cover. With the recent support from conservative groups, the entertainment industry seems to be covering its right flank.

To the music sector, Pandora's argument goes something like this: to help you, we need to pay you less. This isn't going to convince many in an industry that has seen revenue shrink by more than half over the past decade and heard scores of similar claims. IRFA would bring Web royalty rates more in line with those paid by satellite and cable music providers. The music industry supports a competing bill that would require satellite and cable radio providers to pay a rate closer to the one that Pandora currently pays.

Wall Street has lost a lot of confidence in Pandora. Not only were persistent rumors about an alleged plan by Apple to launch a Pandora competitor pressuring Pandora's stock but the share price fell after news broke earlier this month that more than 100 music artists were criticizing IRFA. If the bill fails to pass, Pandora won't be cutting costs anytime soon.

Rogan Kersh, a political science professor at Wake Forest University who studies lobbying, told Businessweek today: "When the very artists they are streaming -- the artists they are featuring, the artists that are even cooler than Pandora -- start to push back, that's a real bind for them. It's a major lobbying setback."

Come tomorrow, Pandora will start fresh. Tim Westergren, the affable cofounder of the company, is making way for CEO Joe Kennedy (at least he has the right name for Washington politics), who will testify on Pandora's behalf. Some of the others testifying include David Pakman, former CEO of eMusic who is now a venture capitalist; Jimmy Jam, a music producer and artist; and representatives from SoundExchange and the National Association of Broadcasters.