I’ve written about Pandora, an Internet radio streaming service, a number of times before (the last being their development on a Windows Mobile client). Before they were forced to block access from countries other than the U.S., it was one of my favourite sites. Despite that, about a million listeners every day tune in every day, its iPhone application is among the 10 most popular, and it attracts some 40,000 new customers a day. Sounds like a pretty healthy business, right? Except that Tim Westergren, Pandora founder, today told The Washington Post that the company is looking at “pulling the plug”. “Why?” you ask. Two words: Royalty fees.
Last year, the U.S. imposed new royalty fees on Web radio stations. For Pandora, these will amount to USD$17 million this year alone. Pandora projects that revenues this year will reach USD$25 million, not enough to keep Pandora in the black.
In contrast, satellite radio pays about 6 or 7 percent of its revenues in royalties. Traditional radio pays nothing in performance royalties, only paying a broadcasting royalty once it pays a song. Essentially, traditional radio pays once to play a song to many listeners whereas webcasters pay for each listener.
Pandora is looking at running more ads in a bid to survive. But while Pandora is not quite ready to throw in the towel, Westergren also indicated that the company’s investors are not going to continue to support and invest in a company that cannot make money.
I really hope that Pandora lives on and finds a way to re-open its doors to listeners outside of the U.S. rather than going quiet forever.