Pandora to Pull the Plug

By Steve Harvey Oakland, CA (August 19, 2008)--Popular internet radio site Pandora may be about to shut down. Webcasting royalty fees imposed by the Copyright Royalty Board last year may eat up too much revenue for the company to continue, according to founder Tim Westergren.
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By Steve Harvey
Oakland, CA (August 19, 2008)--Popular internet radio site Pandora may be about to shut down. Webcasting royalty fees imposed by the Copyright Royalty Board last year may eat up too much revenue for the company to continue, according to founder Tim Westergren.

Following lobbying by SoundExchange, the organization that represents performers and record companies, the Copyright Royalty Board set a royalty rate for webcasters last July of 8/100 of a cent per song per listener. Pandora recently reported over 15 million users and says it has been adding new listeners at the rate of 20,000 to 40,000 per day since the introduction of the Pandora app for the new iPhone 3G. That means that Pandora could be expected to pay fees of around $17 million this year or 70 percent of a projected $25 million in revenue. Smaller webcasters have already complained that the royalties will amount to anything from 100 to 300 percent of their annual revenue.

"We're approaching a pull-the-plug kind of decision. This is like a last stand for webcasting," Westergren recently told The Washington Post. Pandora stopped webcasting to the U.K. in January of this year.

All types of radio currently pay royalties to the songwriters and publishers through the performing rights organizations, which in the U.S. include ASCAP, BMI and SESAC, but there are inequities in the application of performance royalties. In 2010, royalties will double for the larger web stations to an estimated 2.91 cents per hour per listener. Satellite radio, by comparison, which currently pays approximately six to seven percent of revenue in fees, is expected to be paying about 1.6 cents per hour per listener by 2010. Terrestrial radio traditionally has not had to pay performance royalties, although SoundExchange is working to close that historical loophole.

Rep. Howard L. Berman (D-Cal.) is reportedly attempting to broker a resolution that would reduce the royalty rate. But, Berman told The Washington Post, "Most of the rate issues have not been resolved. If it doesn't get much more dramatic quickly, I will extricate myself from the process."

Meanwhile, Westergren is looking for ways to raise revenue, including audio ads to supplement the current web site-only ads. As he explained to The Washington Post, "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 its headed towards a solution, we're done."

Pandora
www.pandora.com

Copyright Royalty Board
www.loc.gov/crb