Pandora, an Internet radio station that plays music tailored to your tastes, is one of the top downloads for owners of an iPhone or iPod Touch, and for years has been popular via computer as well.
But now Pandora threatens to close up shop because of new royalty rates that took effect last year and doubled the per-stream play rates. They say the rates are eating up around 70 percent of the company's profits.
SoundExchange, the organization that collects royalties, said that if Pandora can't afford to pay about $10 per listener per year, the problem lies with its business model.
“Our job isn't to subsidize every business model, including ones that may not be working,” said John Simson of SoundExchange. "Satellite radio, for example, charging a subscription makes about $118 per year per consumer. Over-the-air radio, they generate about $80 per year per consumer. Pandora, by their own testimony last year at a hearing, it's generating about $1.70 per listener per year. There are no ads. How are they generating money?”
Pandora, an Internet radio station that plays music tailored to your tastes, is one of the top downloads for owners of an iPhone or iPod Touch, and for years has been popular via computer as well.
Some analysts say small sites like Pandora, without the backing of a big parent company, oftentimes look for a break from the traditional business model in order to generate loyal fans.
“It is their fault, but on the flip side, the reason is why it's ‘their fault,’ they're not making as much as terrestrial radio,” said Caroline McCarthy of CNET.com. “They're not buying into the sleaze that terrestrial radio does, and it's very much the same kind of problem that an independent band faces when it needs to either do something that would potentially involve selling out, or not being able to make music anymore.”
Pandora and its supporters are urging the government to judge royalties on a case-by-case basis, since every technology is so different.
For example, Internet radio stations have to pay a minimum of $500 per stream. Now, there’s a question whether Pandora is one giant stream, or since everyone gets a unique playlist based on their tastes, does that mean $500 needs to be given for every single listener?
“You have to take into account the audience size and you have to take into account customizability,” said Lance Ulanoff of PC Magazine. “And you have to take into account that you can almost create ‘radio stations’ on the fly. None of those things have been taken into account.”
In the meantime, SoundExchange said it is willing to continue negotiations with Internet radio stations.