Pandora wants you to have free music. The Recording Industry Association of America, it seems, does not.
Music, like all media, has gone digital. The eight track replaced the record and the CD replaced the eight track. And to replace the CD? The mp3 and other compressed music files, which are played and stored on devices with ever-increasing storage.
But with the new frontier of the World Wide Web came technology that could beat copyright protection and distribute media on a previously unseen scale. With it came a prevailing attitude, right or wrong, that media consumption should be free. Many organizations have attempted to comply and capitalize on providing free content. TV can be watched on Hulu for free, many online newspaper sites have no subscription costs, and even Google is looking to make its massive public-domain book collection complimentary via a click of a button. Yet music has something that TV and information do not, the RIAA.
How could one forget the immense popularity of Napster, the peer-to-peer file-sharing program, which increased its numbers by just a few thousand to 50 million from 2000 to 2001. But the RIAA fought to keep profits for artists and in November of 1999 sued the company for infringement of copyright laws.The law was on the RIAA's side -- Napster was forced to either shut down or start charging for its music. (It chose the latter, and has been through multiple iterations since).
Since then RIAA has gone after anyone who is downloading music illegally. In 2003 a 12-year-old New York girl was among 261 people who were sued by the RIAA for music pirating. In late 2008 a 19-year-old disabled woman living in Pittsburgh with pancreatitis was also sued. And today, the RIAA is pushing Congress for more crackdowns and even harsher punishments for illegal downloaders. The hundreds of RIAA lawsuits need not dissuade consumers from pursuit of free music. There are legal options -- very, very good ones.
Pandora is an Internet radio system, some dub it the Internet radio, that has revolutionized the notion of free music with its Music Genome Project. MGP is a system that creates a playlist catered to each individual listener's taste. It learns about user preferences through real-time feedback, shaping the playlist to include music more to a listener's taste.
Pandora was founded in 2005 by Tim Westergren, who started his career a musician and a composer for music in films. Westergren told HispanicBusiness.com that his experience working with directors and action gave him a greater understanding on how music fits together and prompted him to think up the concept behind Pandora.
"I kind of had the musical genome in my mind for a long time."
Based in Oakland, CA the website has seen a significant rise in popularity and today has 28 million accounts. Westergren reported that the Web site sees 50,000-60,000 new accounts made daily.
He said that Pandora's objective is to be the most listened to radio service ever, and his chances are pretty good considering the amount of users doubles annually.
When Westergren began his online radio service he knew he was going to have to pay both a broadcasting fee and royalties. Like public radio, he signed the Digital Millennium Copyright Act, which basically prohibited the company from giving away its stash of music for free. "You sign one piece of paper and it gives you a right to play any of the 70,000 artists we have," explained Westergren, whom states that this is the reason Pandora listeners cannot replay a song (though it may pop up on future broadcasts) nor skip past too many songs.
What Westergren was not ready for was the RIAA's attempt to pillage the Pandora fortune. In 2007, the RIAA pushed Congress to tack harsher fees onto Internet radio sites. The end result was that Pandora pays 2 cents per hour per user, and that rate will continue to stair-step up to 3 cents by 2010. The same year the company was forced to cancel all accounts outside the U.S. due to international licensing constraints. Rumors of Pandora's closure abounded, and U.S. users were soon afraid that they would suffer the same fate as their foreign counterparts.
"It was a little dicey for a while there," said Westergren. "There was some misconception of what kind of fees our industry could manage. [RIAA was] doing what any business does, trying to get more for their product."
Though two nor three cents may not seem significant, Pandora averages a million users per day and today those royalty payments equal a staggering 50 percent of Pandora's revenue. Fees like this, he says, are "completely out of the ordinary." Satellite radio only contributes about 6 percent of its revenues for paying royalties.
"I think artists should get paid, I never thought that Pandora shouldn't have to pay royalties," said Westergren, "I just don't think it should be at such a high precedence." At one point, fees cost the company 70 percent of its annual revenues but, due to the site's popularity, that ratio has been mitigated.
Luckily for Pandora and its millions of enthusiastic users, the Web site has managed to stay afloat, and even increased its profit margins through advertisements and new 10-second audio ads that play between songs something Westergren indicates users are going to be hearing more of in the future. "From the listener's standpoint this will never be what you are used to on broadcast radio," noting that the ads only last 10-15 second and are usually played at the rate of one per hour. "It's a new market, the Internet audio advertising, it takes a while for [advertisers] to understand this market," noting that Internet radio will in the future see most of its revenue increases through their use .
The RIAA continues to push for higher profits per song--"that rate is being renegotiated and is about to be resolved," Westergren said. However, he sees the importance of keeping music free for consumers since it can be viewed as public radio. And although digital music is taking off, "Broadcast radio is still [our] biggest competition."
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