Pandora business model undermined by high royalty demands

By August 21, 2008 8 Comments

Back in April I wrote that the royalty demands of the music majors risked undermining the viability of online music services. It seems that might be coming to pass – as reported on Techdirt, under the pressure of high royalty demands from the RIAA Pandora is thinking of shutting down.

If this comes to pass it will be a crying shame – Pandora is a great and popular service with about 1 million listeners daily, and is one of the 10 most popular applications for the iPhone and is attracting 40,000 new customers a day.

It is also stupid – the issue is a straight fight over how the proceeds of music are split between the retailer, label and artist. Nothing new there, and I would guess that Pandora are at least to some extent grandstanding by making the debate public, but the bigger issue is that in the digital world the pie is smaller than it used to be. Labels and artists therefore need to a) reset their expectations, and b) find other ways to make money.

There have been lots of initiatives by individual artists that evidence this trend – e.g. Madonna’s $120m deal with Live Nation, Prince’s deal last year to give away his new album with the Mail on Sunday here in the UK, and then recently AC/DC’s exclusive distribution deal with Walmart for their new album.

It is time the industry behemoths caught up with what their leading artists are doing.

To finish on a positive note, there are some encouraging signs around. Aecdotally I hear good things about and We7 and their deals with labels.