By: Spacelab Research Staff
As 2008 begins its slow descent towards 2009, the viability of online music experiences like Pandora are struggling to scale. The company has grown to roughly 40,000 new visitors a day, with a yearly revenue of about $25 million. Generating money it seems, is not a problem.
What's crippling Pandora (and a lot of other online experiments) are the royalties. About 70% of that $25 million is going to the licensing of that music, making Pandora iincredibly popular but not very profitable. It also means that they'll have trouble scaling the business into something larger, as the more popular they become, the more they pay in royalties.
All of this means that Pandora is facing a decision on whether or not to go on. It's 2008 and we're witnessing the Achille's heel of what some once heralded as a free music revolution: costs.
In an interview with the Washington Post , founder Tim Westergren said "We're approaching a pull-the-plug kind of decision. This is like a last stand for webcasting."
There's an attempted negotiation going on this week between SoundExchange and webcasting groups in their long standoff over royalty rates, and the result of that may make a decision very easy for Pandora.
"We're losing money as it is," said Westergren. "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."