Closing Pandora’s Box

Guest Column
Online radio giant Pandora.com has recently announced that it will likely go out of business.

For any subscriber, this is unfortunate news. And for those who haven’t heard of it yet, Pandora is an online radio station. However, unlike what you would hear over FM or even satellite radio, Pandora is able to tailor its playlist to each user. Each song and artist has hundreds of musical attributes (such as “subtle use of vocals.”) So if you hear a song you like, or if you have a favorite artist, you can ask Pandora to play songs with similar attributes – all for free.

Seriously, no catches.

Personally, Pandora has given me music I would never have been exposed to through regular stations. I live near enough to Chicago to pick up Q101, a popular alternative radio station. For the purposes of this article’s “extensive” research, I checked their weekly playlist. It looked like a three-hour playlist on repeat.

That’s typical of most stations. After all, radio is trying to make a profit, and research has shown that the average listener only listens for about 15 minutes at a time. So, stations play the same songs every few hours hoping to catch the listener once for something they’ll like. As a result, the stations never really branch out beyond the Top 40 and into the more under-represented music (aka underground music). Pandora lets kids without tight pants get into music.

The reason for considering calling it quits was an eminent increase in the cost for property rights. Namely, each time a web radio station plays a song it must pay a small fee to the artists and record companies. Because Pandora might be broadcasting a different song to each user at a given moment, it has to pay for each song, whereas a typical station plays (and therefore pays) for one at a time. The cost for playing a song is going to increase, to a point that is fiscally impossible to pay for Pandora.

There are alternative ways of generating new revenue, such as putting in ads between songs or having users pay a subscription fee, but it doesn’t seem that the thinkers at Pandora want to go that way. I don’t know if they’re just reluctant and trying to hold out before they commercialize or they are idealistically refusing to, but if I were in the board meetings, I’d tell them to start brainstorming new avenues of revenue.

On the other hand, this price increase does seem to be less about giving the proper compensation to artists for their work and more about squeezing out a new (and better) competitor in the market. If Pandora settles to pay the new cost and live with commercials and what-not, then it will likely set a precedent that will not allow companies like Pandora in the future to come back and challenge the cost for songs. It’s a hard choice for those at Pandora, and it’s frustrating that music exposure might be the collateral.