Pandora Internet radio service threatened by high fees

August 16th, 2008

Peter Whoriskey’s Washington Post article, Giant of Internet Radio Nears Its ‘Last Stand’, describes how Pandora and other webcasters are struggling with the high per-song fees they are now required to pay.

“Pandora is one of the nation’s most popular Web radio services, with about 1 million listeners daily. Its Music Genome Project allows customers to create stations tailored to their own tastes. It is one of the 10 most popular applications for Apple’s iPhone and attracts 40,000 new customers a day. Yet the burgeoning company may be on the verge of collapse, according to its founder, and so may be others like it.

Last year, an obscure federal panel ordered a doubling of the per-song performance royalty that Web radio stations pay to performers and record companies. Traditional radio, by contrast, pays no such fee. Satellite radio pays a fee but at a less onerous rate, at least by some measures. As for Pandora, its royalty fees this year will amount to 70 percent of its projected revenue of $25 million, Westergren said, a level that could doom it and other Web radio outfits.”

On of the arguments that SoundExchange, the organization that represents artists and record companies, makes for increasing the fees is that Internet radio stations have not been active enough in generating revenues from playing their songs.

“Pandora makes advertising money only from spots placed on its Web page, not on audio ads that run between songs. Other stations are similarly struggling to persuade companies to pay for advertising in the new medium.

“We’re taking this challenge very seriously,” Westergren said. “When we have our board meetings, the central topic is the revenue trajectory, not how happy our users are.” He said Pandora has a 30-person ad sales operation, or about 25 percent of its workforce. The company will soon start running subtler ads similar to those on National Public Radio, too, he said.”

Thanks, SoundExchange.