@ Digital Music Forum West: Pandora Founder Says Honeymoon Is Over

This story was written by Matt Kapko.
The next year to eighteen months is going to be a period of "reckoning" for online streaming music companies, Pandora founder and chief strategy officer Tim Westergren told Digital Music Forum West attendees during his keynote Q&A. "I think the fate of the small webcasters is going to be determined in the next few months That's going to winnow out, I would guess, a fair amount of these companies. Many have been in a honeymoon period where new ideas have been exciting," but "at the end of that you've got to start showing real profit Nobody's sort of having a free picnic on this."

Webcaster Settlement Act: Westergren: The bill that Congress passed this week "gives us an opportunity to finish the negotiation I don't think anybody's going to walk away from this negotiation happy, but we're honing in on a solution that we can work with." The bill guarantees that the government will not interfere if internet radio stations and copyright holders can reach a deal over royalty rates. Under the current Copyright Royalty Board rules, Westergren has said Pandora would have to hand over $18 million of its expected $25 million in revenue this year to cover royalty rates. While "no one's going to raise their hands for joy at the outcome," Westergren said he's "certainly tired of talking about our company going out of business."

Monetization goal: "Webcasters can aim to make about a nickel an hour for their webcasting The numbers that we're looking for would allow us to survive if we hit those targets."

iPhone :Apple's device now accounts for about half of all of Pandora's 17 million users. The iPhone doubled Pandora's growth rate from 20-plus new users a day to 40: "It's changed our growth trajectory." While AT&T (NYSE: T) charges $8-$9 a month and Sprint (NYSE: S) charges $3 a month for Pandora, the application is free on the iPhone aside from data costs, and that's made all the difference, he said. "It has people thinking a little differently about what internet radio is." When Pandora first went online it charged $3 a month after a free 10-hour complimentary period; few remained after the free period ended. "Our experience with subscription services has really not been a happy one."

Promotional vs. substitutional: "If you're providing on-demand music I think you're substitutional. That's my opinion. And if that's the case I think you ought to pay for it." When users approach an on-demand like service there's "logic to say that you'd be less likely to purchase it If the service doesn't allow you to play a song on demand then I think it's promotional." It's the middle ground that everyone is fighting over, he said, adding that Pandora is also one of the top sales affiliates on iTunes and Amazon.

End of ownership?: Westergren believes ownership will continue. "I think I listen to iTunes more than Pandora I'm not somebody who believes that's all going to vanish." That said, there's a substantial desire for a passive listening experience. "The consumption of music is primarily going to be a passive one People don't want to have to work for their music" or create their playlists.

International expansion: For Pandora to operate in other countries (the service is only available in the U.S. currently) it would have to make individual agreements with every artist in every country it planned to do business: "If there was one thing I could say to labels it would be 'Can we please figure out an international licensing structure?'"

By Matt Kapko