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Pandora Founder: "Last Stand" Decision Nearing
Just two weeks after our interview with Pandora founder Tim Westergren, he sat down with the Washington Post today for a very serious discussion about the future of Pandora and of webcasting in general. In our interview, Tim spoke openly about the royalty and licensing issues around music and called the situation, "a real mess".
Peter Whoriskey spoke with Westergren today and if you are into music streaming online, the interview is a must read. Westergren opens with the following, "We're approaching a pull-the-plug kind of decision". And he closes with, "So if it doesn't feel like its headed towards a solution, we're done". The article also notes that Pandora's royalty fees this year will amount to 70 percent of its projected revenue of $25 million.
Here's the bottom line around the royalty issue from Whoriskey, "The Copyright Royalty Board last year decided that the fee to play a music recording on Web radio should step up from 8/100 of a cent per song per listener in 2006 to 19/100 of a cent per song per listener in 2010." That's $17 million for Pandora this year based on usage. Smaller webcasters may already be out of the game due to the increased royalty rates. On the radio stations I listen to on iTunes, many of them have messages about the royalty rates throughout the day.
The question here is whether other music streaming companies (last.fm, imeem, etc.) will face the same struggle that Pandora is. And the answer so far is yes. Perhaps we will need some sort of pay model for these music streaming companies to foot the bill.
Steven Hodson also has some good insight into the issues facing Pandora and the industry at large.
I wonder if Tim has a 'sweet spot' in mind that he is trying to negotiate to, or if it is just too much of a mess to really know.
As a signed musician, I can understand the need for royalties for songplay, but this is just too much.
The truth of this is greed and low-hanging fruit. It's a centralized system, so it's easy to implement an automated process that can calculate what people owe to ASCAP, etc.
The problem is that there is bandwidth to be paid for (which the cable companies want to charge more for, too...). This isn't a situation where you just blast the signal over the airwaves. Every person that listens uses a significant amount of bandwidth. The one variable they're leaving out of their magical money formula is the listener count. This is also something you can't determine in traditional broadcasting... but it's very convenient that they leave listener count unattributed. Prices would have to be much lower, then.
What if they did this to club DJs?
yes, the royalties are too high and should be rev share based, not per play based. and why is it that terrestrial radio and satellite radio have much lower (or non existent) royalties. we need a level playing field for sure.
but pandora doesn't run in stream audio ads.
our portfolio company targetspot is monetizing internet radio very well for those who want to run in stream audio ads. and pandora should use them. but they don't. and they don't use their competitors either.
the truth is people minimize the player when they listen to internet radio. so monetizing the stream is the best way to make money. ignoring that option is a mistake in my opinion.
I guess to some extent listening to pandora minimized is like reading a blog in rss.
Yes, but at the same time, that's part of the attraction of pandora, the lack of in-stream audio ads. However, I completely agree that Pandora needs to restructure its pricing and advertising model. It's service is great, and with the rise of the Pandora app for the iPhone, it's now everywhere you go. That kind of functionality is so high, I almost feel bad not having to pay for it. I really hope Pandora can figure out how to keep things going.
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