Frank Caico's Blog

Have you ever used Pandora Radio?  Its a very fun way to listen to music.  You simply type in an artist's name, or a song name and it plays music that is similar (based on a complicated set of heuristics).   It does a real good job.   Best thing of all, its free and there are no audible commercials (there are ads on the web page itself and you can buy songs through the site if you like). Pandora basically tailors a unique musical experience for every listener.  This is something that traditional radio just can't do.  I especially like Pandora for finding new music that I wouldn't have heard otherwise. 

It's this sort of innovation that makes Internet radio (some people call it webcasting) so compelling. Unfortunately for internet radio however, the Copyright Royalty Board last year ordered the per-song performance royalty on web radio stations to pay double what it was paying.  The trend goes like this:  If nothing changes by the year 2010 every time a song is played on an internet-based radio station, that station will incur 19/100  of a cent per song per listener.   That may not sound like alot but as an example, Pandora has 1,000,000 listeners and is adding 40,000 more every day. In 2006 the rate was only 8/100 of a cent.  Traditional radio doesn't even pay this fee and satellite radio pays a lower rate.

The net result is that there isn't a single internet radio station that can afford these rates -- even the successful ones! Tim Westergren, the founder of Pandora and the Music Genome Project has stated in no pretty black and white terms that Pandora may soon be finished:

We’re approaching a pull-the-plug kind of decision. This is like a last stand for webcasting. We’re losing money as it is. 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.

We’re funded by venture capital. They’re not going to chase a company whose business model has been broken. So if it doesn’t feel like its headed towards a solution, we’re done.

Congressional Rep. Howard L. Berman (a Democrat from California)is attempting to make some sort of arrangement between web radio stations and SoundExchange (the organization that represents artists and record companies) that would mitigate these new (and excessive) fees.  Unfortunately though, its doubtful that this will happen, and Pandora isn't going to be able to wait around very long to see how this plays out.  

Its really a shame.  Copyright and Patent laws were actually put in place to encourage innovation and protect the little guy.  Unfortunately, over the years these laws have been warped and twisted to represent the interests of big corporations and have actually started to stifle the innovation that these laws were originally put in place to foster.