Original URL: http://www.theregister.co.uk/2008/08/18/pandora_shutdown_possible/
Pandora prepares to join titsup.com club
Web radio outfit struggling to cover royalties
Posted in Music and Media, 18th August 2008 13:40 GMT
Free whitepaper – The Dell Management Console and ITIL
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 (http://www.washingtonpost.com/wp-dyn/content/article/2008/08/15/AR2008081503367.html) 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 (http://www.theregister.co.uk/2008/01/08/pandora_uk_closes/), 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 (http://www.theregister.co.uk/2008/07/10/lastfm_indie_dispute/), 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 (http://www.alleyinsider.com/2008/8/google-ceo-schmidt-nope-still-haven-t-figured-out-youtube-and-we-still-won-t-sell-ads-on-our-home-page-goog-); a net cost useful only for attracting search traffic. ®