Pandora is a service that thousands of people enjoy every day, yet there’s a chance that they may not be around for very long. Why you ask? In short, it’s because of the royalty fees that they are required to pay which traditional radio stations don’t have to worry about. Pandora co-founder Tim Westergren recently spoke to the Washington Post saying, “We’re approaching a pull-the-plug kind of decision. This is like a last stand for webcasting.”
Royalty fees that they pay amount to around 70% of their revenue which is simply too much. This is all due to a decision a federal panel made last year about how much services like Pandora need to pay. If Pandora is forced to shutdown, we imagine other services like it, including Last.fm, will have no choice but to shutdown as well. Westergren sounds frustrated, to say the least, and it’s not hard to blame him.
There may be a chance for them to survive, if a State Representative from California is able work a last-minute deal. Westergren is put in a position where he can hope for the best, but he has to be prepared to shut-down if no deal is worked out. He says, “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.”
The numbers below should help put things into perspective as to how much Pandora is expected to pay:
- Traditional Radio: they are not required to pay a penny in royalty fees
- Satellite stations: they pay 1.6 cents per hour per listener
- Pandora/Other Internet Radio Stations: by 2010 they will pay 2.91 cents per hour per listener
Obviously the recording industry wants to maximize the amount of money that they can make, but at what point will they realize the value that Pandora and other Internet radio stations bring to their business. They are an amazing marketing tool for artists and likely contribute to more sales of songs and albums, just as traditional radio stations do.