Rising fees may force founder to pull the plug on Pandora

“Tim Westergren, founder of Pandora, says rising song fees could shut down his online music-mix service for computers and mobile devices like Apple, Inc.’s iPhone. The Copyright Royalty Board sets fees that vary by radio station type. The radio fees paid by Pandora and others are funneled to collection groups like SoundExchange,” Steve Bosak reports for CIO Today.

MacDailyNews Note: Pandora is an automated music recommendation and Internet radio service where users enter a song or artist and the service plays selections that are musically similar. Because of recent Copyright Royalty Board rulings that increased fees and ask for licensing guarantees, Pandora is no longer available outside the United States. More info via Pandora here. Pandora for iPhone and iPod touch via iTunes’ App Store here.

“In an interview published Saturday by The Washington Post, Pandora founder Tim Westergren said, ‘We’re reaching a pull-the-plug kind of decision. This is like a last stand for Webcasting,'” Bosak reports.

“At issue are the royalty fees paid by online, satellite and land radio stations… Westergren estimated before a Senate subcommittee last month that these fees will amount to 70 percent of Pandora’s revenue. And it’s about to get worse. Under the 2007 agreement, fees will nearly double by 2010. If that weren’t enough, hearings to begin soon will set royalty rates for 2011 and beyond, and many assume those rates will be even higher,” Bosak reports.

More details in the full article here.

47 Comments

  1. They can’t see past their own greed… Why can’t they just make the royalty fee’s a small percentage of a companies revenues? I mean isn’t 10% of something better than 100% of nothing??? Not to mention the obvious effect that Pandora’s system (by way of discovering new music) helps them even more in the long run!

  2. I would like someone to explain to me how is commercial broadcast radio different from online radio, from music labels’ perspective? Commercial radio pays no royalties, due to the (ancient) understanding that it provides airplay and thus free promotion for labels’ products. Meanwhile, by using that product (for free), commercial radio is able to sell advertising time (inbetween the free product) for big $$ and make profit.

    In the online world, web radio does pretty much the same: provides (air)web-play for labels’ products, and the web site in turn sells advertising space on its pages.

    Why is commercial broadcast radio not paying royalty fees, and web-radio is forced to pay them for exactly the same type of business model? What was the argument of the RIAA lobby here?

  3. This is actually being pushed by traditional radio stations as the greatest threat to their businesses are internet radio stations. They want those fees as high as possible to drive down competition. Artists are the only ones who can stop this from happening. And it is in their best interest. Just like taxes, the higher the fees, the less it will be used, so they may get twice as much money per play, but they will be getting one-third the number of plays.

    In the end, there will be no free internet radio without commercials.

  4. The record labels are the only ones that benefit from these fees, Artists see nothing. The sad part is Pandora is forced to pay royalties on Indie Music that the Indie Artist’s rarely and most often never sees. Because a large chuck of Pandora’s and Last.FM’s royalty payments are for indie artists’ music the collection society splits the unclaimed indie royalties between the record labels after taking a big chunk of the fees. The record labels want on-line on-demand music providers like Last.FM (now owned by CBS) and Pandora to die or to only use label artists. The use of Indie music is one of the things that ended the fee talks last year with internet radio being stuck with the highest broadcast fees in history.
    Pandora will die in 2008 or by the end of 2009 and Last.FM will be around for a while longer as CBS has much deep pockets and can keep it running for awhile, if they don’t convert Last.FM to something were they (CBS) controls the copyright on the content and can use it for free or a much lower price on the performance fee.

  5. Obviously, going against insignificant web-radio providers is much easier than going against broadcast networks and large corporations who own terrestrial (analog) radio. This might explain why only web guys are forced to pay, and ordinary broadcast radio was spared. I could see how RIAA might have approached the networks with “You should pay us royalties for using our music!”, and they collectively responded “Bite me! See you in Congress!”. While RIAA has a lot of lobbying money, networks probably have even more, so RIAA decided to go where they can easily win.

    That still doesn’t answer my question: How did they bamboozle the lawmakers into accepting the idea that web radio and analogue radio are different?

  6. Amazingly, satellite radio pays lower fees than webcasters. There was an excellent podcast on this issue at Gene Steinberg’s the Mac Night Owl website last year.

  7. I assume they’re toast, so I’ll speak in the past tense: Pandora was a class act, and would have grown into bigger and better things if allowed to. They were making great strides in researching the essential elements of music, which is a legacy no terrestrial radio station in history could ever claim. If the music industry had held this kind of power over Apple, we would not have iPods and iPhones today (thank God they did not). I’ll miss Pandora.

  8. I just started to enjoy it on my Iphone in the car.
    What a shame, a DAMN shame.

    I mean, as much as I love to listen to people on the radio that LOVE to listen to themselves speak. . . . . . . . psyche!

    Plus commercials and repetitive song playlists are so underrated!

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