Following last week’s announced agreement between Internet radio services and SoundExchange, Pandora has gotten an almost immediate confidence boost on its future. Even though its founder Tim Westergren has referred to the funding environment for online music start-ups as Toxic, Pandora managed to close a new round of funding headed by Greylock Partners. Reports put the investment figure at around $35 million.
Greylock’s investment was led by Partner David Sze, who is apprehensive about online radio. “I’ve been concerned about the space in general, but as I looked under the covers I realized it’s a great business,” Sze said. “Pandora’s brand is strong and they’re getting to scale.”
Pandora’s success is hinged on royalty rates. The rates announced in 2007 would have made webcasters pay out $0.08 per song through 2014, but would have increased to $0.19 in 2015. Considering Pandora offers a free service, this would have been a very expensive reality for a company that would be paying 70% of its revenue in royalties.
The newer scheme will see webcasters earning more than $1.25 million in revenues pay the greater of 25% of gross revenue or $0.093 per listener, per song, increasing to $0.14 by the year 2015. Due to the new royalties, Pandora will be placing a small charge on its heavy users. A user who listens for more than 40 hours in a month will need to pay a 99c charge to continue listening.
“We realized that with this resolution that when you’re advertising-supported it’s harder to monetize a heavy listener,” Westergren said. “It’s easy to monetize someone who listens for one hour, but harder for someone who listens for two hours or more. Advertisers pay for reach, not depth. This is just asking for a dollar in the tip jar.”
Result for: tim westergren
Internet Radio has been saved today, for the time being at least, after SoundExchange signed a deal with radio webcasters.
SoundExchange is the organization in charge of collecting royalties for musicians and the record labels relating to online music.
The deal, settled after 2 1/2 years of very public disputes over proposed royalty increases, will allow Internet Radio to survive. Webcasters will not be forced to pay per-song royalty payments that many webcasters claimed would put them out of business.
According to the LATimes, webcasters can now “choose an alternative rate structure that allows them to pay lower per-song royalties through 2015, or 25% of their revenue.”
“If the rates weren’t resolved, we were sunk. So this is a huge relief,” adds Tim Westergren, founder of Pandora. Westergren adds that Pandora, through its site and iPhone App, has about 30 million registered users.
The company expects to have $40 million USD in revenue for 2009, and could possibly now be profitable next year.
The new royalty deal will start at a per-song rate of 0.08 of a cent per listener per song and will rise to .14 of a cent by 2015. The proposed rates had been .0762 for the first year, and then .19 of a cent for 2010, a gigantic increase.
The LATimes adds that “under the new agreement, large webcasters pay whichever is greater — the per-song fee or the percentage of revenue. Smaller commercial webcasters — those with $1.25 million or less in total revenue — would pay between 10% and 14% of their sales or 7% of their expenses, whichever is greater.”
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Result for: tim westergren
While speaking in Des Moines, IA on Monday, Pandora internet radio founder Tim Westergren indicated that he believes webcasters and record label representatives are close to a deal on royalties for internet radio. The comments came at a gathering of Pandora listeners, which you can read more about in a new article here at Afterdawn.
Mr. Westergren took a few minutes to sit down with me and discuss the current state of Pandora and even speculate a little about the future. We also talked about devices that make it possible to listen to Pandora when you’re not sitting in front of the computer, including mobile phones and appliances that connect to both your home network and home stereo.
For more details about our conversation you can read the entire article on our Guides and Articles page.
