Pandora Sells ‘Radio Loophole’

Although it may be doing so at a loss, it seems Pandora is finally selling their South Dakota radio station KXMZ, soemthing which they had initially purchased in an attempt to format their identity as that of a broadcaster, and consequently pay songwriters broadcaster rates.

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Guest post by Chris Castle of Music Tech SolutionsIn another sign that the adults may finally be in charge at Pandora, the company sold South Dakota radio station KXMZ for a reported $300,000 (after purchasing the station in 2015 for $600,000). Why did Pandora buy KXMZ (or as it came to be known, “Radio Loophole”?)At the time, which was during Pandora’s bad old days of what Billboard called “World War P”, Pandora was suing songwriters to lower royalty rates for their one product–music. According to Pandora, they were not treated fairly because terrestrial radio paid lower rates to songwriters then did they as webcasters. Apple, meet orange. Pandora’s strong move was to buy a relatively inexpensive radio station so it could try to pass itself off as a broadcaster which it clearly wasn’t. Hence, Radio Loophole.Some speculated at the time that Pandora’s board might have gotten confused that the station was in South San Francisco rather than South Dakota as it is unlikely any of them had ever been to South Dakota (and it’s almost as equally unlikely they’d ever been off the 101 in South San Francisco, for that matter).But Pandora plopped down $600,000 of the stockholder’s cash (Old Pandora’s preferred form of tender for acquisitions it seems) and then went to get the blessing of the rate court. Kind of a knucklehead move that also unnecessarily stoked the battle fires of World War P.

Here’s a tip–there’s this thing called a “post closing condition”. In the case of Radio Loophole, it would go something like, “I’m only buying your station if I can use it to lower what I pay to songwriters and it’s worthless to me unless I can. So this transaction will not close until I get the rate courts’ approval which I have to accomplish within 12 or 18 months. And here’s 10% of the purchase price for you to keep for having to stand still long enough for me to find out. Deal?” Not that different than a transaction being subject to FTC merger approval.A post closing covenant (or “post closing condition”) is the precaution you take if it’s your money or you take your duty to your shareholders very seriously. But what happens to inexperienced management with hundreds of millions of someone else’s money burning a hole in their pocket is hard to explain.Let the Old Pandora’s disastrous acqusition of Radio Loophole and Ticketfly be examples to entrepreneurs of the honeytrap of cash in the bank. And that loophole seeking behavior eventually catches up to you, so why do it in the first place?With Pandora’s endorsement of the CLASSICS Act that would change the law to requirement webcasting royalty payments to artists whose recordings were released prior to 1972, I have to say that it feels like there’s a far more enlightened leadership at Pandora just in the last few weeks. Not to look the gift horse in the molars, but it would be really nice if Pandora didn’t wait for the bill to pass and just started paying the statutory rate on a go-forward basis at least.Either way, three of the gargantuan unintelligible blunders of Old Pandora are being put right–Ticketfly, pre-72 and now the sale of Radio Loophole. Fingers crossed we have more good news to come.