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Pandora

February 17, 2013 2 comments

In a New York Times article in 2002 David Bowie famously predicted the end to copyright and that “music itself will become like running water or electricity”. I find that to be a truly futuristic and exciting vision for what the early days of the internet promised in terms democratisation and freedom of access.

And the fact that it came from a musician – albeit an already very wealthy one – but one who could see that greater openess for content still supported a business model.

The internet music radio services like Pandora, Spotify, Slacker, TunedIn, Sirius, are creating an absolute incarnation of Bowie’s vision while also showing how the internet can continue evolve into a semantic web Berners Lee envisioned.

I love Pandora for the reasons that everyone else does – it opens up the entirety of human music and curates it to your tastes. To quote Wikipedia: The service plays musical selections of a certain genre based on the user’s artist selection. The user then provides positive or negative feedback for songs chosen by the service, which are taken into account when Pandora selects future songs.

While the service has been offered in the US for 12 years it only reached Australia and New Zealand late last year. But it’s the same deal as US users get – free with ads or US$3.99 (NZ$4.85) per month without ads.

Pandora is accessed via web, 20+ car models and radios or smartphone – and it’s the latter that may be a real challenge to Pandora’s existence despite the fact it has  65 million active users.

The company’s business model is based primarily on ad revenue and its biggest cost is royalty payments. Each time Pandora streams a song, it pays a royalty fee to SoundExchange, a Washington-based trade group that collects royalties and distributes them to recording artists and music publishers. According to BusinessWeek the online music service paid 0.11¢ per song in 2012; that will rise to 0.14¢ in 2015. The royalty board has yet to reset rates for 2016 and beyond.

When Pandora launched it was consumed via desktop or laptop browsers but as in all other digital industries the mobile revolution has turned this on its head with millions of downloads of the Pandora app on iOS or Android. And for Pandora mobile revenues are much less than web. And with an increasing cost line, well you can see the issue. It’s a sobering position to be in as a business when the more customers you get (on mobile) the tighter your margin becomes and you can see where this may head for Pandora.

But there’s no shortage of competition for internet radio dollars. Spotify has 20 million active users

Slacker Radio has just relaunched in the US promising more music choice than Pandora. Slacker is more like traditional radio with human-curated stations, although you can establish your own as well and its revenues are based on advertising or subscriptions. It has 4 million active users with 500,000 being paid subscribers.

And don’t forget Apple, the great change agent in modern musical history. They are also eyeing this space.

And as with iTunes, which gave us easy and cheap access to our favourite music but also generated fair revenue for the artist – this is all great news for music lovers and musicians too. The impact on traditional radio is yet to be understood.

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