Given the recent minority investment from Sirius and sale of Ticketfly, it appears that Pandora is now being governed by the board and not its senior management team.  This should come as no surprise to anyone–the stock is down about 27% for the year, and is down a sharp 30% or so for the last three months.  In fact, it was down almost 5% today alone.  Some Pandora stockholders might have been asking themselves, “Where is the board?”  Hello…it’s them.

It is important to recognize that despite its checkered history with minuscule payments to songwriters and artists, Pandora does write a pretty big check every year to the industry as a whole.  After all the royalty rate discounts we’ve given to Pandora over the years, most of us feel like investors in the company, so we’d like to see that revenue stream continue for the benefit of the industry as a whole, and especially for collective licensing through SoundExchange and the audits it conducts.

However–the most rudimentary technical analysis of Pandora’s stock shows just how far either the old or new management has to go, and this is before taking into account the dilutive effects of the Sirius investment.  The company’s share price has sunk like a stone through the 200, 100, 50 and 10 day simple moving averages of its share price to close today at $7.58.  Investors Business Daily’s rankings show Pandora outperformed by 91% of other stocks.  A number of analysts have cut their price targets on Pandora since the Sirius investment, which may signal disappointment that there was no sale and Pandora is now stuck with the current management.  We’ll see.

It’s clear that the technical signals show the company has a long, long way to go to dig out of the current ditch it was driven into.  On the other hand, Pandora has just raised a ton of cash, so we hopefully will not see the company coming back to artists and songwriters hat in hand asking for yet another break on royalty rates.

But–with Sirius now holding 19% of the company on an as-if-converted basis and three board seats including the chair, I wouldn’t rule out another stab at getting the artists and songwriters to help finance Pandora’s rich overhead costs and debt service (running at approximately 48% of revenue).  Those Sirius guys ain’t playing.

Barron’s reported on Sirius Chair Greg Maffei’s commentary on streaming:

One notable media executive had some harsh words for streaming music services during a speech at a Deutsche Bank investor conference [in March]. “We think it’s a very unattractive business,” said Liberty Media CEO Greg Maffei, noting the high cost of music rights. “You’ve seen that with Spotify now with 50 million users [and] still not profitable.” [emphasis mine]

Not much interest in getting the overhead down, a whole lot of interest in getting the royalties down.

So fasten your seatbelts kids, it’s going to be a bumpy night.

All indications are that Pandora’s management seems to be raising cash and emerging from a latter-day Dot Bomb “money drunk.”  The latest sign is Pandora’s sale of its Ticketfly subsidiary to Eventbrite for a reported $200,000,000.  The sale comes less than two years after Pandora acquired Ticketfly for $335,000,000 in cash—a cash on cash loss of $135,000,000.

And that’s a lot of streams.  One of the problems with startups that suddenly come into the public markets with a pile of cash and inexperienced management is that they lack the cunning patience to spend it wisely and play the long game.  One big difference between the Dot Bomb public company management and the management of a more traditional public company that has operated privately at a sophisticated level for a decade or so is that very lack of sophistication.  And that shortfall of management skills is what can cause stockholders to experience these fits and starts like Pandora’s all cash acquisition and essentially immediate fire sale of Ticketfly.  (None of which is Ticketfly’s fault, by the way.)

If you remember what it was like in 1999, then you can’t forget what happened in 2000, so this should all sound familiar.   For the companies like Pandora who got to the Dot Bomb party late, imagine the disappointment in the management team when the market began crashing back to reality weeks after they formed the company.

But credit where it’s due, the company did manage to survive the long dark night of the Dot Bomb Bubble that followed while the NASDAQ Composite lost 78% of its value.  The question has always been whether Pandora’s management was still mired in the kind of thinking that drove companies over the edge in the Dot Bomb crash.

Pandora’s acquisition of Ticketfly was a prime example of Dot Bomb thinking and the inability to be frugal, patient and strategic with a pile of the stockholders’ cash.  As I’ve often said in discussion with business subscribers, integrating ticketing was a good idea for Pandora that did not require buying a ticketing company and it certainly did not require buying a ticketing company for cash.

The headline on the transaction of course is that Pandora lost money on the deal, but if anything that understates the transaction cost of the wrong turn.  A Ticketfly executive had this to say about the future of the transaction as it affects Pandora:

Our clients will have the best of the best when it comes to technology, and will of course continue to have access to Pandora’s massive audience to promote shows and sell tickets.

While this acquisition will allow Pandora to focus on its core radio and streaming businesses, it isn’t abandoning its live events strategy, and the Ticketfly – Pandora integrations aren’t going away. In fact, Pandora and Eventbrite plan to enter into a partnership to build on the work we’ve done and take it to an even broader audience of promoters, while offering listeners notifications for even more great live events.

Given that the future long term relationship with Pandora post the sale—which presumably had something to do with Pandora’s decision to acquire Ticketfly in the first place—will continue as an integration into Pandora’s platform, do you think that Pandora could have gotten a ticketing company to do that integration without paying $135,000,000 plus the cost of the integration?

Do you think maybe that ticketing company might have paid Pandora something to access Pandora’s user base and as a touch point for the artists on the service?  Wouldn’t that payment might have been a starting point for valuing the original transaction?

Even though ticketing is a potential revenue builder for Pandora, I am still deeply skeptical about how having a ticket selling function helps bands get the shows they already must have in order to be selling tickets in the first place.  Not to mention the fact that Ticketfly quite correctly seems to be focused more on the Wynn Casino that in helping an unknown band get shows outside of their home town.  I understand why Ticketfly needs the Wynn Casino, but it’s not helping independent artists get shows anymore than a heat map of streaming helps convince a talent buyer of much of anything at all.

And I am definitely skeptical if Pandora continues to wring its hands about how royalties stifle innovation as the company seeks ever lower royalties.  What if instead of spending $335,000,000 on Ticketfly, they’d paid some of that money in songwriter or artist royalties?

The question now is will Pandora’s management try to offset that mismanagement by getting the artists and songwriters to pay for it through still lower royalty rates?  I’d assign at least a 50% probability to Pandora doing the usual handwringing about how royalty rates stifle innovation to distract anyone from looking at their financials too closely which put the Bomb in Dot Com.

But this time they have no one to blame but themselves and they need to make up their $135,000,000 loss on the Ticketfly transaction from somewhere else.  Now that the founders have enriched themselves, perhaps instead of attacking the artists and songwriters who provide Pandora with the product that makes the wheels go round, maybe this time they could try to be good allies and stop suing songwriters in rate court, filing over 1,000,000 mass “address unknown” NOIs at the Copyright Office, and generally doing everything humanly possible to make it difficult to support them.