Pandora, the excellent music recommendation and streaming service, may be closing its doors in the near future over royalty fees paid to SoundExchange, an organization that represents artists and record companies in royalty negotiations.
Founder Tim Westergren told the Washington Post the company was "approaching a pull-the-plug kind of decision." Pandora will pay roughly 70 percent of its projected revenue of $25 million in music royalties, a level which Westergren says is unsustainable. "We're funded by venture capital. They're not going to chase a company whose business model has been broken," he says.
Because of the awkward regulations that were introduced as new forms of music delivery were developed -- first, terrestrial radio, then satellite, now Internet -- radio station owners pay different rates depending on how the music is delivered. "Traditional" radio pays nothing in performance royalties, though SoundExchange is -- of course -- trying to change that. Satellite radio companies, for now limited to SiriusXM, pay around 6-7 percent of revenue: roughly 1.6 cents per hour per listener. Internet radio stations like Pandora are required to pay 2.91 cents per hour per listener -- a significant chunk of change for companies who, like so many Internet companies, haven't figured out a way to make much revenue.
Congressman Howard L. Berman (D-CA) is trying to negotiate a last-minute deal to settle the issue, but is having trouble getting the parties any closer to a deal. As for Pandora's future? "We're losing money as it is," Westergren told the Post. "The moment we think this problem in Washington is not going to get solved, we have to pull the plug because all we're doing is wasting money."
If that happens, Pandora's more than 1 million daily listeners will be left out in the cold -- and the company will be relegated to the dot-com scrap heap with every other popular-but-profitless Internet company from the past 10 years.
At least they won't be lonely -- and will make a nice listing in The Standard's "Where are they now" series.
More news, commentary, and predictions from The Industry Standard:
- Prediction: Pandora avoids bankruptcy, quickly converts to subscription model
- Special Feature: The Digital Home of 2013: 10 consumer technologies that will succeed, and five that will fail
- Special Feature: Where are they now? The Industry Standard tracks down 10 dot-coms from the Web bubble of the late 1990s
- Special Feature: The Industry Standard's Top 25 B-to-Z List Blogs
Comments
This is so sad! I LOVE Pandora and now that it's available on the iPhone, Pandora's service is nearly unparalleled. However, as Sound Exchange points out, there are more things Pandora could do to increase its revenue stream; though I don't know what those things are, the writers at Ars Technica reluctantly agree.
I don't know how much subscription revenue Pandora would need to run in the black, but I woud be most willing to entertain a reasonable amount. Pandora, are you listening? What will it take? Come to your user base -- you may find more of them are willing to fund you than you might believe.
I wouldn't mind paying 3 cents an hour to listen to Pandora.
I'm bummed. Pandora is the only streaming music I've found that gets around my company's firewall. We sit in 'open' areas (not cubes), so having the headphones on to block out the chatter is helpful. Tweak the biz model somehow to stay in the black, please!
I would even tolerate listening to some audio commercials from time to time to keep Pandora running. It seems to me they haven't exhausted their revenue options yet.
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Oh no! I use Pandora to find new music. Then I actually but the albums! The music industry is run by a bunch of greedy idiots! I just won't buy music anymore.
Using Pandora on my iPone while driving is the best! I have Serius but now don't want that, just my Pandora, I'd pay for this. Pandora, hang in there. Ask for subscriptions from those 1,000,000 of us!
Pandora is not going to close!!! Don’t be fooled by threats from SoundExchange. They want more money and Pandora is saying well if you jack up the price we will just pull the plug and you will get nothing. Almost a game of chicken .... Who will cave first? Tim Westergren knows that he can pass this expense on to its users, like SoundExchange wants him to, but he will fight for the ideals that Pandora was founded on. Free music! Without free music most of us would have just dismissed Pandora as another internet radio. Pandora is the reason most of us go out and buy the music. We hear it on Pandora and they want to purchase it. Sound familiar ... Just like terrestrial radio. I personally love Pandora. I am a software engineer and I listen to it every day all day. I even have it on my iphone. Will Pandora pull the plug, most defiantly not, will the cost get passed on to us, maybe. If you are listening out there Tim, you keep fighting the good fight and let you fan base know what we can do to help. Petitions, letters to congress, you let us know!!!
Who else out there believes that Pandora just needs a little support from its users?!?!? Speak up or forever silence Pandora!!!
Sincerely,
Just another Pandora believer
As far as purchases, I would never have considered as many artists had I not been listening to Pandora. I have purchased from the site lots of songs from the iTunes store. Pandora drives business to the music industry. They need to wake up to that!
I hope Nick is right!
In the 70s, I started and ran a company in the nascent "foreground music" industry. I negotiated reasonable licenses directly with major record companies and ASCAP/BMI representing publishers. It wasn't easy, but we made it work.
Now, I am a Pandora subscriber. In my opinion, Pandora could be the most effective music promotion medium of all time. More important and productive than any radio station ever was, or all of them combined. Why? Because Pandora knows what music its subscribers listen to. It knows our individual music genomes. It drives new music to us, but so what?
It could become the most useful and lucrative supplier of marketing information the recording industry has ever had. Billboard Magazine... are you kidding? These people know who's listening to what -- their profiles, demographics, etc. And the indie labels couldn't afford the info if the mega corps were willing to bid up the price.
If Pandora dies, the industry -- now a shadow of its former self -- will suffer.
In my humble opinion; a subscription move will kill their market capture. Free user base = fuel for free market research +400 algorithms and counting… The smart play is to position as a world’s most sophisticated musical consultancy. Target audience should include best of breed record studios and producers. There just needs to be investment in sexy analytics to play ball. Revenue offering for growth will come from Ad Hoc customized sound portfolios to high paying clients (i.e. Warner, Sony, Universal, EMI). Keep the Independent labels for Pandora's own Record Label. I think they deserve it.
If someone thinks subscription is the best move, one must be sleeping with the lights on. Think how bored Executive Management will be with "subscription". "A quick hit theory" is not what brought these guys together...
I believe there is a patient snake in the grass on this one. One must not forget consumers like things "cool" and the user-base are the key’s to the IP engine.
"After that my guess is that you will never hear from him again. The greatest trick the devil ever pulled was convincing the world he did not exist. And like that... he is gone. " Kevin Spacey
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