Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Absolutely Horrible News For Pandora

Tickers in this article: NFLX RIMM P INTC SIRI
NEW YORK ( TheStreet) -- Pandora (P) needs a plan B ... badly.

If I was advising the company, here's what I would tell it do ... yesterday (!):

  • Backtrack on the Internet Radio Fairness Act considerably.
  • Push the annual subscription option, but find some way to incentivize it.
  • Cultivate additional revenue streams immediately.

I've got to be 100% honest here.

I feel awful about writing this article.

After having had the chance to meet Pandora co-founder Tim Westergren in person and on the phone over the last year, I came to admire the guy even more than I did before we connected. He's an incredibly bright visionary and one hell of a person to boot.

I have come to know a small handful of people at Pandora. Again, all excellent folks. But I have got to call it like I see it. I can't keep quiet just because I like an individual or a group of people.

Quite frankly, outside of Netflix (NFLX) , I have not seen a company take a more abrupt turn for the worse in a long time.

Most negative turns develop over time. Think Research in Motion (RIMM) , Microsoft (MSFT) and what we might be witnessing with Intel (INTC) .

In these typical cases, you look in the rearview mirror and point to a historical signpost where a decline began and intensified to a point where it would have taken a Herculean effort to prevent a hard landing.

That's what happened at RIM. That's what happening at Microsoft. And that's what might be happening at Intel.

While you can't call Pandora a company in decline -- it continues to show consistent and impressive growth in almost every key metric -- you can certainly liken it to a company in peril from a strategic standpoint.

I cover what ends up Part One of this somewhat bearish case in Is Pandora Panicking? Should Investors from mid-October.

At that point, I maintained a long-term bullish stance.

Now, I simply cannot be a bull unless Pandora makes profound changes to its approach in the fight over music royalties.

Here's why I am worried.

On Thursday, a large collection of musicians -- about 125 of them -- signed an open letter to Pandora opposing the Internet Radio Fairness Act.

This is the bill working its way through Congress that would put Pandora's royalty rate more in line with Sirius XM (SIRI) satellite radio, cable television and other entities/mediums that license music. Right now, Pandora pays anywhere from roughly 50% to 65% of revenue in royalties, depending on the quarter. For example, it pays about six times more than Sirius XM.

The artists who decided to speak out against the bill are major names. We're talking everybody from Katy Perry to Rush to Billy Joel to Blondie to Jackson Brown to Alabama to Bryan Adams to KISS to Sheryl Crow to Vince Gill to Maroon 5 to The Pointer Sisters to ... you get the point.