Do you love Pandora? Get ready for heartbreak…

by oz on August 20, 2008

I’d like to start this post in the same voice I use for my newborn at home. Pandora go bye-bye. I don’t mean to be insensitive, but watching the music industry implode is getting comical.

I saw Pandora CEO Tim Westergren (pictured above) speak at Stanford University last year and I’ve always loved their application. If I was cool enough to own an iPhone, I’m sure I’d love the Pandora iPhone app even more.‚  Tim and his crew have been dealt what appears to be a lethal blow. The Copyright Royalty Board decided to increase the royalties paid by web radio providers from 0.0008 to 0.0019 per song, per listener.‚  Pandora currently has 1 million listeners daily and the rate hike will raise their costs too high to operate a sustainable business.

Westergren has a few comments in the Washington Post article. He’s been a fighter over these issues in the past, but he now seems to be changing his tune (no pun intended) and is accepting defeat:

“We’re funded by venture capital,” he said. “They’re not going to chase a company whose business model has been broken. So if it doesn’t feel like its headed towards a solution, we’re done.”

Sound Exchange, the organization that represents performers and record companies, claims that artists [see record companies] deserve a bigger cut of internet radio profits. My perspective is different. The benefit of Pandora is not in playing the Top 40 of mainstream music. It allows users to enter mainstream bands and then Pandora powers music discovery, pointing to similar and often unknown bands that wouldn’t have otherwise been on the radio.

I’d understand this move by the Copyright Royalty Board if Pandora simply copied the FM radio model for web.‚  Maybe if they played Radiohead all day and acquired legions of their fans as users, then‚  Radiohead might deserve more of the profits. But Pandora serves up an infinite long tail of bands and serves as a vehicle for those artists to get attention and exposure from fans that have a predisposed interest in their sound. It’s a new model and shouldn’t be compared to FM radio, where the basket of musicians available to listeners is limited to a select few. I feel bad for Pandora, their employees and their charasmatic CEO.

I can say this with near-certainty. The performers are not demanding an increase in royalties. It must be someone else…

{ 9 comments… read them below or add one }

A H August 20, 2008 at 8:50 am

Didn’t you just get done saying Port O’Brien is having a hard time dealing with the cost of gas? So why can’t it be the bands asking for an increase in royalties? I love music, but at the end of the day, someone’s gotta get paid or their won’t be any music for you to blog about… I also love Pandora, but let’s be honest, they built a website with a model that requires them to spend increasing sums of money with each new user, having no real viable revenue model.

oz August 20, 2008 at 10:17 am

Good point and yes, I did say that. But here’s the thing – Port O’Brien probably isn’t going to be played on your local station, unless it’s local college radio. POB is out there trying to build their name and find an audience. Pandora gives them an opportunity that legacy radio doesn’t. The economics paid out in Pandora’s model should be smaller if they support legions of artists. There’s a tradeooff. Support very few bands and share more royalties or reduce royalties across a multitude of bands.

I agree that great bands are suffering right now. Consumers have the same budget for music, but now have 100 times the choices when deciding what to buy (or if they’ll just find it for free somewhere). Pandora’s royalties aren’t going to move the needle for these bands. In the article you’ll read this comment by Matt Nathanson – “Net radio is good for musicians like me, and I think most musicians are like me,” he said. “The promotion it provides is far more important than the revenue.”

Pandora’s model may be flawed in in its current form, but what if bands entered the platform opting out of royalties and entering into ad- revenue sharing model like imeem? Usually when you have millions of loyal daily users, you’re doing something right.

It’ll be interesting to see what happens in the coming months.

the OCMD August 20, 2008 at 10:47 am

Ironically, I just read an article in the Washington Post last night on this same topic and was fuming all evening. You can fault Pandora’s business model all you want, but the reality is that the royalty system is not structured fairly. Terrestrial radio stations pay zero royalties, thanks to their corporate parents and lobbying power. Satellite stations pay some royalties but Internet radio stations like Pandora are getting raped. It’s clearly a ploy to shut down Internet based music sites.

It’s inevitable that the music industry is headed to where companies like Pandora are going. It just might take the fall of a giant like Pandora for people to wake up and start caring. The fight isn’t over. But it’s high time the music industry – and labels – stop looking at shared files as lost sales and start treating it as a reality upon which to build their business. And use Radiohead as a case study.

oz August 20, 2008 at 12:32 pm

Radiohead is a great case study for a band with a brand. They have global fans as customers salivating for new releases. It would be like Apple saying they are done selling iPods in Best Buy. Would anyone care? You’d buy from their site directly or go to an Apple store. I see lines, 100 people deep, waiting to buy iPhones at Apple stores in the bay area.

The big challenge is for new startup bands launching themselves and their music. Radiohead’s model wouldn’t work for them. They need services like Pandora to get their music plugged into thousands of new ears, hopefully with a click through to buy their album. Imagine if you built an mp3 player out of your house that was somehow better than the iPod (I know, work with me). If you launched it, where would you go? Where the consumers already are – Amazon and eBay.

DA WEX March 31, 2009 at 6:12 pm

looks like your dumb

oz March 31, 2009 at 7:06 pm

I think you mean “you’re dumb.”

Kat May 29, 2009 at 9:41 am

If this ever was the case, it’s no longer the case. Pandora is here to stay!!!! AMAZING SERVICE!

Relevance6 June 28, 2009 at 4:42 am

I really hope that Pandora can outlast! I love it, and I have never been exposed to such wonderful music through the radio, and I am sure that I would never have been. I have slightly eccentric music tastes and Pandora is totally there to supply it for me! I LOVE PANDORA!

ian March 15, 2011 at 8:56 am

The success of others only offends the weak. Miraculously my pandora keeps playing music even though they have been dealt a lethal blow. Maybe the good-times police haven’t noticed yet. Prediction FAIL.

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