Report: web radio royalties may sink Pandora

by Caroline McCarthy, Wired News

Tim Westergren, the founder of popular Web radio start-up Pandora, has said in an interview with The Washington Post that his company may be close to a shutdown.

"We're approaching a pull-the-plug kind of decision," Westergren said in the article, published Saturday. "This is like a last stand for webcasting."

The problem, he explained, is last year's royalty hike for Web radio, which makes it extremely expensive for an independent start-up to stay afloat in the business. The royalty increase will eat up 70 percent of Pandora's $25 million in revenue, Westergren said.

SoundExchange, an organization comprising representatives from record labels and performers, believes that Internet radio owes a bigger cut of profits than traditional radio does. Activist groups like the SaveNetRadio Coalition, along with start-ups like Pandora, have fought the fee hikes.

A few Web geeks weren't convinced that Pandora's situation is as dire as Westergren says it is. "I love Pandora like my old baseball glove, but they can only pull this Chicken Little move so many times," marketing consultant Brian Oberkirch posted to Twitter on Monday morning.

But Westergren assured in the Post interview that he's not exaggerating. "We're funded by venture capital," he explained. "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."

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