Will Pandora Play 'The End' Soon? Royalty Rate Hikes Could Be Its Demise

The surprisingly popular iPhone application, Pandora, may not be around much longer. The company, which began online and quickly grew on the mobile front, lets users sample new music and create personalized radio stations that recommend other songs and artists based on hundreds of musical attributes. This is some potentially sad news for music fans who like their music free, but don’t want to risk the recording industry’s wrath. Pandora founder Tim Westergren has turned up what can only be seen as a lobbying effort in an interview with the Washington Post. Pandora is “approaching a pull-the-plug kind of decision,” a potential “last stand for webcasting” as royalty fee increases begin to take hold. It’s clear he wants legislative support – and if that can be helped by spurning a coordinated outcry from the company’s million-plus users who listen to Pandora daily so be it. "We’re losing money as it is,” he told WaPo. “The moment we think this problem in Washington is not going to get solved, we have to pull the plug because all we’re doing is wasting money.”

There are some dire economics standing in the way of web radio. Last year, the Copyright Royalty Board ordered per-song performance royalties to be more than doubled for use online. Rates will increase from 8/100 of a cent per song per listener to 19/100 of a cent per song per listener by 2010. Pandora’s royalty fees this year are projected to hit $17 million, about 70 percent of its projected revenue for the year. The fee increases don’t effect traditional or satellite radio, but SoundExchange, an organization that represents artists and record companies, is trying to up those rates as well.

Pandora makes most of its revenue by placing ads on its website. Currently, no commercials run between songs, but the company plans to start airing brief sponsor ads in the audio feed – a la NPR. “We’re funded by venture capital… They’re not going to chase a company whose business model has been broken. So if it doesn’t feel like it’s headed towards a solution, we’re done.” Read more at paidContent, our sister site.