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.

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.

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.