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Pandora prepares to join titsup.com club

Web radio outfit struggling to cover royalties

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This weekend saw a cry for help from personalised web radio outfit Pandora. It blubbed that music industry royalties are too high for it to survive on meagre web 2.0 advertising revenues.

In a Washington Post confessional, the firm's founder and CEO Tim Westergren said: "We're approaching a pull-the-plug kind of decision. This is like a last stand for webcasting."

The fees Pandora must pay collecting societies for creating and streaming custom radio stations will swallow 70 per cent of its projected $25m advertising revenues.

Westergren blames the decision of the Library of Congress' Copyright Royalty Board last year to set rates for custom services such as his - which effectively offer a virtual jukebox - significantly higher than traditional or satellite broadcasting. The Board decided to raise royalties for webcasts from eight one-hundredths of a cent to 19 one-hundredths of a cent per song by 2010.

Switch-off in the US would mark a dismal end to a rapid worldwide retreat by Pandora. In July 2007 it went dark in all non-US and UK territories after failing to reach payment agreements with collecting societies. That was swiftly followed in January by a pull-out from the UK, again citing royalty woes.

Unlike its Blighty-based rival Last.fm, Pandora's venture capitalist backers have yet to see a return on their repeated investments with a big media buyout. Last.fm was swallowed by the CBS conglomerate for $280m last year. Although it has its own licensing problems, the credibility and long-term stability of its sugar daddy has helped the site prosper.

Pandora's failure to attract a similar cash-rich buyer now seems terminal, despite its popularity with users. Attempts are being made to win a stay of execution by renegotiating the royalty rate, but Westergren seems resigned. "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."

Pandora is by no means alone in its inability to profit from "free" content. Even Google, the undisputed champ of web advertising, runs YouTube as a loss leader; a net cost useful only for attracting search traffic. ®

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