Royalty Rates Threaten to Sink Pandora

By Nick Mokey August 18, 2008

After all of last year’s rhetoric about the death of Web radio due to a music industry rate hike, it looks some of those predictions are close to becoming reality. According to an article in The Washington Post, the popular Web radio property Pandora is close to shuttering its doors when the much-discussed royalty changes finally go into effect.

“We’re approaching a pull-the-plug kind of decision,” Pandora founder Tim Westergren told the Post. “This is like a last stand for webcasting.” The issue: with the new royalty rates in effect, Pandora will hand over 70 percent of its profits to record companies, leaving little to keep the fledgling company afloat.

And those profits, for the time being, are purely on paper. Pandora hasn’t yet made a dime, but its founders project that happening for the first time in 2009, when it would rake in $25 million, and hand over an estimated $17 million to record companies.

Westergren hasn’t mentioned a hard deadline for the company’s potential doom, but he fears the venture capitalists currently propping up the site may lose interest if the company’s profit model is “broken” by the new rates.

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