After two years of uncertainty, Pandora’s future has finally been secured.
For those not familiar with what was going on, basically the streaming rates for Internet radio were in danger of being raised to levels that would have made it very hard for companies like Pandora to stay afloat. But a resolution has been reached between webcasters, artists, and record labels, Pandora CTO Tom Conrad tells us.
“Pandora is finally on safe ground with a long-term agreement for survivable royalty rates,” Conrad says.
The key part of the resolution involves SoundExchange agreeing to a 40-50% reduction in the per-song-per-listener rates. In exchange, Pandora is giving up a 25% share of its U.S. revenue. [Update below, if that 25% figure is higher thank the per-song-per-listener number.] This agreement runs through 2015.
But Pandora also had to give up a little more. Because the rates agreed upon are still quite a bit higher than other forms of radio, the service is going to have to put limits in place for users of its free version. Apparently, this will only affect 10% of the user base, as it’s basically just anyone who uses Pandora over 40 hours per month. If a user hits that wall, it will only cost them $0.99 to go unlimited for the remainder of the month. Seems fair.
Users of Pandora One, the pay version of the service, will continue to have unlimited listening.
I asked Conrad if this 25% kickback or new per-stream rate will effect Pandora’s stated goal to be profitable by next year. “It’s a great outcome. Expensive, but I think we can still be profitable next year. These are workable rates,” he says.
Update: Just to clarify one thing, the new deal will see Pandora pay either 25% of its U.S. revenue or the new per-song-per-listener rate, whichever is higher. That’s an important distinction because it likely means Pandora will actually be paying more than the 25% figure. [Thanks to MediaMemo's Peter Kafka for pointing that out.]
Find the rest of the details in the email below.
Many people played a role in getting here. Pandora listeners provided support in extraordinary numbers in Congress, and a group of reasonable and constructive voices on the label and artist side of the table at SoundExchange helped forge a middle ground that, while perhaps not meeting all of our aspirations, still represents a thoughtful and reasoned outcome under the circumstances.
The deal we’ve crafted is an industry-wide solution for all “pure play” Internet webcasters. The core of the compromise is that SoundExchange has granted a 40-50% reduction in the per-song-per-listener minimum rates in exchange for us giving them a 25% share of our US revenue. The deal extends through 2015 and has special carve outs for the so-called “Small Webcasters.”
While we feel this is a substantive victory, the revised royalties are quite high – still much higher than any other form of radio. As a consequence, we will have to make an adjustment that will affect about 10% of our users who are our heaviest listeners. Specifically, we are going to begin limiting listening to 40 hours per month on the free version of Pandora. In any given month, a listener who hits this limit can then opt for unlimited listening for the remainder of that month for just $0.99. In essence, we’re asking our heaviest users to put a dollar (well, almost a dollar) in the tip jar in any month in which they listen over 40 hours. We hope this is relatively painless and affordable–the same price as a single song download. Alternatively, they can upgrade to
“Pandora One”, our premium version which offers unlimited monthly listening in addition to its other benefits.Q2 was our best quarter to date and dramatically exceeded our plan both in terms of user growth and revenue. Mobile adoption continues to be very strong with uptake on the BlackBerry looking like it will meet or exceed iPhone levels. Still, the unresolved licensing issues have hung over us like a dark cloud for two years. It’s a great feeling to have the road cleared of that obstacle.
What a relief! I love Pandora. I am certain that it, and its ilk will be the future of music. Hands down!
Go Pandora!!!
This is awesome news. I love Pandora app on my iPhone.
Hooray!
Congratulations Pandora (and Blip.fm, Last.fm etc) this is great news for us all!
While this is good news, let’s get something clear: the “unlimited listening” doesn’t mean unlimited skips. That’s the only freaking reason I paid for a premium account!
geez.. people are so naive. If you know the details, the deal itself is horrible. Why would Pandora stick in a 40 hour listener cap otherwise?
Everybody cheered the Imeem deal at first too, look where they are now.
safe ground indeed
a 40-hour cap which affects 10% of users. but more importantly, it’s $0.99 to upgrade in a month to unlimited. That’s one song on iTunes. And really I’m not sure why power users wouldn’t be using Pandora One anyway, which isn’t effected by the cap.
so assuming 20 day work week. A office listener would get to listen for 2 hours a day.
99 cent upgrade will end up affecting more than 10%
of the users.
As for the conversion rate for Pandora One, I’d be surprised
if it’s greater than 1% of all unique Pandora listeners. People just won’t pay for stream radio
services
especially one that has less and less content.
the “discount” rate still comes out to be about 2 cents an hour which means Pandora still need to get 80 cents per listener even for that 40 hours.
What you’ll end up seeing is less service at a higher
price which is already happening and it’s just going
to get worse.
You lost me at 20 day work week
in a month
10 percent of users listen more than 40 hours a week.
How the hell is this going to affect the other 90? You’re clueless.
How is this a horrible deal? Pandora can stream all the music you want, and turn a profit for $1/month.
The old rates weren’t bad, either. The only problem was that Pandora was unwilling to actually charge for their service. For some reason, Pandora management, like their users, think they should be able to use other people’s content however they choose, and the content owners should just lower the price until it’s profitable for Pandora to give it away for free.
If people really love Pandora as much as they say they do, then why doesn’t Pandora just charge all their users $1/month? We’re not talking about a lot of money here, we’re talking about a totally reasonable amount for the service. Why does everyone feel so entitled to get everything for free?
WHAT PROFIT?!
the deal says 25% of all revenue whether you make money or not, or whatever the discount rate multiplied by the number of performance, whichever is HIGHER…
everyone was already b*tching about how the old rate was 60% to 200% of revenues, and this deal just puts a minimum at 25% if you’re small enough. How is that a good deal?!
Nobody will admit that the online music business is akin to running a very unprofitable gas station. margin sucks, costs is high, and everybody b*tches at you about gas prices instead of the oil companies.
ummm, yeah; we only do new music; not available on pandora, itune, etc.
i think all the companies making deals with old media are doomed. old media wants total control; and old media customers are lamers.
What profit? That’s the point; if you can’t make a profit, you can’t be in business. In order to make a profit, Pandora should START CHARGING USERS TO USE THEIR SERVICE!!!
It’s such a novel idea that I don’t think many people understand it. By not charging money or running ads, Pandora is/was bankrupting themselves. The royalty rates, even the old ones, were low enough that if Pandora were to charge their customers just $1-2/month, they WOULD MAKE A PROFIT.
It’s not up to the copyright holders to make sure that royalties are so low that Pandora can give away music for free. They set the royalty rates so that they’re able to make money. It’s up to the Pandoras and Last.fms of the world how to come up with enough money to cover their costs.
Pandora is, for some reason, totally opposed to doing anything to make money. Instead of raising their revenues, they just complain that the costs are too high. Honestly, I’m surprised it worked.
You know what happens when the costs to sell a product are so high that it’s not profitable to sell it? People stop selling it, or they start selling something else. For example, gas costs whatever it costs. You can’t buy gas for $2.50/gallon and sell it for $2.00. Also, since there are way too many gas stations, there’s no profit in selling gas (only for the parent companies). So, your corner gas station also has a snack shop, and they also do repairs.
Pandora needs to start thinking like those gas stations. If they choose to continue to give music away for less that it costs, they’re going to need to find actual revenue sources. For example, you should be able to click-through and buy tracks that you like. Apple makes about $.30/song doing that, which is a pretty fantastic margin.
When you hear a band you like, why can’t you click-through to buy merch and concert tickets, for which Pandora could collect a referral fee? Why aren’t there “Featured Artists” who pay Pandora (or forgo royalties) to have their songs played more frequently, thereby getting more exposure to the Pandora user-base?
Seriously, come on. It took me like 2 minutes to come up with a winning business-plan for Pandora. Pandora isn’t even trying to make money, or else they’d be doing stuff like that to offset some of their costs. They’d also be CHARGING USERS A NOMINAL FEE.
Every time Pandora complains about how they’re going out of business, users flood the blogs with messages like “NOOO, I love Pandora so much, I hope they make it!” You really don’t think some of these people would pay something for this service they love so much?
Pandora needs to stop whining, and start getting serious. Or, if they want to prove how important it is for the industry that Pandora should keep giving away free music, they could just shut it down and see how the record companies like that. If Pandora is a valuable enough source of revenue, they’ll cut Pandora a deal. If Pandora isn’t, then what are we talking about here?
My guess is that if Pandora went away, there’d be plenty of other businesses out there with actual business models, willing to absorb their users. If there were no Pandora, maybe more people would be signing up for $10/month Zune-passes, or Rhapsody, or something.
pssst.. wanna know how you can double what you get from royalty that SX has been collecting?
how about get SX to pay out everything they’ve collected instead of less than 50 cents on the dollar they’ve collected since 2005?
What did Simson do with the 100M SX collected in 2007 anyways when SX collected more than $135M and paid out $36M? Crack and hookers?
Does this mean we’ll be able to get Pandora in Canada now?
It’s interesting to me that the fee got cut in exchange for a slice of the revenue stream. It’s less like they got a better deal and more like they switched the basis of their costs from stream count to advertising sold.
So very happy to read this! I have been a huge Pandora radio fan for a couple of years now. It has allowed me to discover music I may never have found otherwise.
Same here Sally! I found so much cool music with Pandora and I love my Squeezebox. I don’t even listen to my mp3 collection anymore.
@lex
The deal is a compromise for sure — a compromise two years in the making in fact. We’ve gamed out every possible scenario along the way and felt that this set of victories and concessions was the best reachable solution for the entire Internet radio industry. The revised deal sets the stage for Internet radio to continue and achieve profitability. The rates this deal replaces offered no such possibility.
Tom, is this deal specific to Pandora, or does it apply to all webcasters?
From reading the post, it sounds like an industry wide deal ..
i dont think so. i would be observed to allow one company to speak for another. Slacker Radio hasn’t changed anything as far as I know.
it’s a die now or die later compromise.
two wasted years.
So… would you rather die now or die later? Later, right? (Unless you’re as suicidal as you are shortsighted). I think buying themselves two years is justifiable if the other option was not having any years.
@Tom Conrad
do you realize that because of Pandora One, and the $0.99 unlimited service you described, Pandora just signed on to the same royalty structure as the NAB deal. So in order to qualify for the pureplay deal, Pandora will have to eliminate subscription and syndication services?!
and the NAB rate is going to up 0.0025 at 2015?!
Did you guys even read the terms?!
Pandora isn’t saved, Pandora just died
And when do we expect to hear news about Pandora deals made for Europe?
Why can’t TC get “affect” vs. “effect” right?? This is the third article in a row that botches it. Come on, it’s not that hard…
Did they fix an error previously found in the post, or are you a total sucktard?
Whew, what a relief. I enjoy listening to Pandora more than music I’ve purchased.
My Pandora stations have totally spoiled me from listening to music almost any other way.
stay tuned for the RIAA interactivity lawsuit
Will this new agreement get us any closer to providing the service outside of the US again?
+1
Pandora’s great!
A shame it’s not available anymore outside the US. Went to last.fm and imeem. Now I enjoy spotify, which costs EUR10/month, but which gives me unlimited listening to (nearly) unlimited songs.
btw
Just read about “Pandora One”. Does anyone if Pandora One allows me to play certain songs in the order I prefer? Or is it al random?
It’s random. It’s just ad-free, and unlimited non-stop streaming. And they give you an Adobe AIR app for your desktop.
Thnx for the answer
Hmm…
I think I’ll stick with spotify.
For those who wonder:
spotify offers both random and non-random playing.
I just tried to access pandora.com from Amsterdam, and was auto redirected to this…
http://www.pand....com/restricted
Too bad. Glad folks in the US can listen at least.
I use it enough that I felt it worthwhile to pay the $36/yr for a One account. Obviously i didn’t HAVE to but I felt they deserved my money. So I upgraded. Now if only they’d offer the higher streaming quality to mobile users. Then I’d truly be a happy camper. I don’t regret upgrading, though!
Does this have any impact on availability outside of the US?
no
This deal is evil purely for the fact that SoundExchange gets *any* money at all! Their model is to collect “royalties” for broadcasts of all artists, even those not signed with any label, with no prior permission from the artists or publishers, unlike SOCAN, ASCAP, BMI et al. The indie artists will never see any of that money, you can be assured; it’s extortion of broadcasters pure and simple.
Ditto. BMI, ASCAP, SESAC… these all cover the costs of online casting. SoundExchange is a bane for college radio, too. They ask college stations for $500 per stream per year. That’s a HUGE chunk of budget for a college radio station.
pandora is officially saved whheee!!!!
It suck that they now force to switch to paid version if you listen to the music for more than 40h a month. Me and most of my friends have it non-stop in earphones during the work hours ;-(
Pandora is not forcing you into the annual subscription. if you hit the 40 hour mark in a given month, then listen to something else til the new month or pay $.99. You do have options
Is that a frown and a wink? Can’t say I’ve ever seen that ;(
>>In exchange, Pandora is giving up a 25% share of its U.S. revenue.
That totally makes sense. Glad to see (or hear) that they finally reached an agreement. At least we can still reasonably listen for another few years, until 2015.
Well this certainly brightened up my day. I don’t know what I’d do if Pandora kicked the bucket. Fantastic news indeed.
That’s great! innovative company, new market, great marketing, good leadership. You guys deserve a pat on the back!
$.99 a month isn’t bad… does that mean I won’t time out???? And, if I can hit the skip button more that would be super cool. BTW, I tend to write down and buy music I hear, so I support the people I like
Over the past two years of using Pandora i have seen an endlessly constrictive usage policy along with a shrinking expansion of artists. Honestly, I think Pandora will just end up in the same place as Yahoo music (which I paid for till I found Pandora) eventually it will cease to exist.
“shrinking expansion”. Hmm. On the face of it that’s a complete oxymoron, but do you perhaps mean that their artist list should grow at a linear or exponential rate? Surely there’s not that many new bands coming? Or did you actually mean a shrinking list of available artists?
“shrinking expansion”, if you consider expansion to be a rate, makes perfect sense. the rate at which the number of artists is expanding is decreasing. think derivatives, you did take calculus right? right?
I probably did, but I think I tried to forget it. I’m saying that it’s an unreasonable expectation at face value. The number of new artists coming out of the labels, mainstream and indie, does not follow rules of calculus. But shit, in the end I don’t really know what Pandora’s up to, like all commenters – I simply know that I won’t listen to their friggin’ adverts on the free version and that it seems tenuous to link this discussion to the idea that they have a shrinking expansion of artists.
I love Pandora and 1Club.fm – 2 of my favs. This is such wonderful news!
THANK YOU JEBUS!!!
Pandora is absolutely the best. It now makes looking at my iTunes library to choose music annoying!
Pandora for iPhone is so great, now I have music next to my bed, music in the bath tub, music while I… well you get the point.
rock on Pandora!
This idiotic deal just managed to f*ck the whole internet radio industry just like stupid NAB deal did to the terrestrials.
soundexchange is going to use these two deals as the basis for the next CRB, and by the time everybody figure out what a f*cked up deal it is, it’ll be too late for everybody.
might as well, whole music industry is dead anyways. Just take what investment money left and go buy a McDonald franchise.
Just set up multiple Pandora accounts to get around the 40 hour cap.
Your cheap ass bastard – if you like Pandora and use Pandora, please pay for the service. It is cheap – $36 a year. Don’t setup mutiple accounts to game the system.
Excellent! Now its terrestrial radios turn! If internet has to fork it over, let EVERYONE get hit for rate hikes! Now I can start actively boycotting ALL radio advertising!
fck u
Look like I better get my .99 Cents ready.
I hit 40 hour of Pandora in about 5 days.
as do I. Unfortunately, $36 is a bit steep for me at the moment, so I’ll just need to pony up my $.99.
Wonder if they’ll allow us to buy 12 months of cheap-o version for $12?
When will they (RIAA, SoundExchange) ever adapt business models that ever work? All of these are silly solutions that limit innovation and a lot more revenue that could be made in more legit ways.
Dang, no im gonna have to bust out a CC for a measly 99 cents. oh well, better than not having pandora, i suppose o_O
-Jack
If you’re going to charge them $0.99, you might as well charge them more. My guess would be that demand for Pandora by its most passionate users is fairly inelastic; if people are going to have to pay something, whether or not they continue to listen has little to do with whether that fee is $0.99, $1.99 or $4.99. Sounds like a great opportunity to introduce a premium service to monetize its passionate user base while placing blame for the cost on the music industry.
So if everyone in the house gets an account now I guess we can still have plenty of music.
You gotta hand it to John Simson.
quoted from the SX agreement
-
Bundled Services: The rates for commercial webcasters providing bundled, syndicated, subscription services are to be the same as the rates agreed to by the National Association of Broadcasters (NAB)
rates for
2010 0.0016 per performance
…
2015 0.0025 per performance
-
which leads to an amusing situation where Pandora gives up subscription revenue to get lower rates, or keep PandoraOne and the 99 cent package and get stuck with the rate NAB members got stuck with.
Good work, Simson. You not only got them to agree to the stupidest deal possible… on top of it all, you got them cheering for ya. Time to ask for that raise you wanted.
Yay PANDORA!!!!!
WE LOVE YOU!
In fact, i’m gonna go on record and say that i would pay $5/mo just for the priveledge of your service. It’s added hours of enjoyment to my life and those around me. And i’m one of your biggest outspoken promoters of the service. All my friends are now on logitech or sonos systems rockin out to Pandora.
Rock On!
gotta love the article update. Tom Conrad’s starting to figure out he got screwed?
did he get to the subscription part yet?
I look forward to the article later about how Pandora just agreed to a rate it can’t afford to pay.
One word: Spotify
In 2009, to spotify will become a verb.
another word: bankrupt
don’t make me laugh
thank goodness they finally reached a viable agreement. Long live Pandora!
I am glad to hear that Pandora will survive. Although I am a big Pandora user, I did not hear of the problems the company was facing. I am willing to pay the $.99 a month for unlimited access. That’s nothing compared to the rates of other internet radio sites. The company has allowed free access up to this point now it is our time to give back.
LONG LIVED PANDORA!!!!!
Still no international access for Pandora, though.
Still not available in Canada.
So technically I don’t care.
But at least now I can remain guardedly optimistic.
I’m another Canuck eagerly waiting for Pandora’s return.
Good news and i’m happy for them.
But still doesn’t concern users like myself from outside US (cumbersome having to listen via proxy servers). so still a downer and i’m sticking to last.fm. i like spotify but my music taste is too “underground” and as such there’s very little there for me to listen to.
f*** pandora
jango or spotify !!
oH…Awesome news ..I love Pandora
Great now I can purchase a Livio radio and enjoy Pandora when my laptop is off. Now if we can get livio to sell these for 99.99
As a music business concert promoter and artist manager in Palo Alto I agree with Mike Cerm in that if you have a killer app that merely requires the use of someone else’s property, you don’t have an ongoing concern.
Whether its Pandora, Lala, or what not, the so-called music companies on line are merely loss leaders for the chip makers, router makers, software biggies. The medium is the message or content.
I still think the future is uncertain for online music radio, but this is encouraging news. Keep the music going.
I love pandora. But… I got a Blackberry Tour and when I listen to pandora with my earbuds the sound will cut off buds and play on phone. Sprint tells me pandora needs an update that the phone is fine and the buds are fine. It drives me F****** crazy that I cant listen with my buds!!!!!!