Pandora Pays 70% of Revenues In Artists Royalty Fees, Considering Shutting Down Shop

Posted Aug 17, 2008

Pandora is one of the best music streaming websites online today.  About 1 million people use Pandora each day because they can create custom stations with their music preferences.  Pandora is in the top 10 most popular applications downloaded on the Apple Inc. (NASDAQ:AAPL) App Store too.  The one thing that stands between Pandora and success is royalty fees.  Royalty fees is the one reason why Pandora is considering shutting down.

Pandora’s project revenue for this year is about $25 million.  Seventy percent of that $25 million is going towards paying royalty fees.  This means that $17.5 million is going towards royalty fees.  This means that Pandora is paying close to $48,000 per day to be able to stream music from mainstream artists.

“We’re approaching a pull-the-plug kind of decision,” stated Tim Westergren, founder of Pandora. “This is like a last stand for webcasting.”

Radio and satellite stations pay a fraction of what Pandora has to pay.  TechCrunch points out that the difference between Pandora and traditional radio stations is lobbying power.  Traditional radio stations are backed by companies like Clear Channel Communications (NYSE:CCU).

“We’re losing money as it is,” added 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.”

Pandora started in 2000 and has raised $21.3 million between 2000 and 2005.  Previous investors include Labrador Ventures, Selby Venture Partners, WaldenVC, Peter Gotcher, Robert Kavner, Crosslink Capital, and Guy Kawasaki’s Garage Ventures.

Related Link:
1. Washington Post