Today I was turned on to an interesting article called Pandora founder pursues bigger piece of radio pieby Antony BrunoAccording to the article, the last quarter of last year was the first quarter the company has ever recorded a net profit.
But, to quote the article:
“Despite all this momentum, it’s not enough to sustain the kind of growth Westergren hopes to achieve. Pandora raked in $50 million in revenue in 2009, which the company hopes to double by the end of the year. Of that, it paid $30 million in royalties to the music industry as agreed to in the CRB rate settlement with performance rights organization SoundExchange.
That agreement calls for Pandora to pay either a per-stream rate for each song it plays or 25 percent of all revenue, whichever is greater. Pandora needs to generate 8 cents per user per hour to shift the royalty burden to the revenue-share model. Currently, it’s bringing in only 2 cents per user per hour.
‘Pandora can’t survive on network advertising,” Westergren says. “The site’s too expensive to run because of the licensing. We have to command premium rates.’ ”
Their answer to this seems to be creating a situation where artists offer content exclusively on Pandora, and then Pandora would sell the advertising for that content at “premium rates.” This has been found to work in the past for the company, with one example being a Dave Matthews Band listening party. However this solution can essentially only ever be a counter balance on the scale, to the royalty fees paid, and so they will constantly be in a struggle to both convince artists to give exclusive content to the site, and then to sell the advertising at the highest possible price.
Their solution equates to a wad of gum in the hole in the dyke. If Tim Westergren wanted to truly solve his problems once and for all, he will have to think about the situation completely differently. Continue reading