Following last week's announced agreement between Internet radio services and SoundExchange, Pandora has gotten an almost immediate confidence boost on its future. Even though its founder Tim Westergren has referred to the funding environment for online music start-ups as Toxic, Pandora managed to close a new round of funding headed by Greylock Partners. Reports put the investment figure at around $35 million.
Greylock's investment was led by Partner David Sze, who is apprehensive about online radio. "I've been concerned about the space in general, but as I looked under the covers I realized it's a great business," Sze said. "Pandora's brand is strong and they're getting to scale."
Pandora's success is hinged on royalty rates. The rates announced in 2007 would have made webcasters pay out $0.08 per song through 2014, but would have increased to $0.19 in 2015. Considering Pandora offers a free service, this would have been a very expensive reality for a company that would be paying 70% of its revenue in royalties.
The newer scheme will see webcasters earning more than $1.25 million in revenues pay the greater of 25% of gross revenue or $0.093 per listener, per song, increasing to $0.14 by the year 2015. Due to the new royalties, Pandora will be placing a small charge on its heavy users. A user who listens for more than 40 hours in a month will need to pay a 99c charge to continue listening.
"We realized that with this resolution that when you're advertising-supported it's harder to monetize a heavy listener," Westergren said. "It's easy to monetize someone who listens for one hour, but harder for someone who listens for two hours or more. Advertisers pay for reach, not depth. This is just asking for a dollar in the tip jar."
Pandora's success is hinged on royalty rates. The rates announced in 2007 would have made webcasters pay out $0.08 per song through 2014, but would have increased to $0.19 in 2015. Considering Pandora offers a free service, this would have been a very expensive reality for a company that would be paying 70% of its revenue in royalties.
The newer scheme will see webcasters earning more than $1.25 million in revenues pay the greater of 25% of gross revenue or $0.093 per listener, per song, increasing to $0.14 by the year 2015. Due to the new royalties, Pandora will be placing a small charge on its heavy users. A user who listens for more than 40 hours in a month will need to pay a 99c charge to continue listening.
"We realized that with this resolution that when you're advertising-supported it's harder to monetize a heavy listener," Westergren said. "It's easy to monetize someone who listens for one hour, but harder for someone who listens for two hours or more. Advertisers pay for reach, not depth. This is just asking for a dollar in the tip jar."
