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Thread: "Sadly, Pandora Is Still Going Bankrupt"

  1. #1
    zcurzan is offline
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    "Sadly, Pandora Is Still Going Bankrupt"

    The economics don't lie. Experienced radio man Bob Bellin says, "No start up webcasting business can give up more than 25% of their revenue and make a profit." Bill Goldsmith of Radio Paradise says that long term viability requires a payment of no more than 10-12% of total revenues for both publishers and record label royalties. The new rates, while lower, are nowhere close to being sustainable. While I've used Pandora as a reference point to illustrate the situation, the same could be written about Slacker, Last.FM, or any webcasting company. Net radio is going to die a slow death in the United States.
    Source: http://www.michaelrobertson.com/arch...?minute_id=298

    I can't tell if this guy is being reasonable or overly pessimistic. Anyone more familiar with Pandora's business care to comment?

  2. #2
    SiriusBuzz is offline
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    He sounds pessimistic but, I think he is being reasonable. I always thought their royalty payments would kill them but every spokesperson for the company says that they will turn a profit and now with the substantially lower rates this should be even easier. Sure, giving up 25% of revenues stinks but what if their costs are damn near next to nothing? A normal business can't give up that kind of percentage but this company might be pure profit for all we know. If they keep heir bandwidth bills cheap and only employ a few people, they can probably afford to give up 25%. Its not like they are marketing or building hardware or shooting satellites into the air... their costs are probably zero.

    My 2 cents.
    Charles LaRocca
    SiriusBuzz Founder

  3. #3
    Whynot is offline
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    I believe the article is spot on and pandora is dead and buried......within 2 years. Now that this small company has to share revenue (increasingly so every year), that they now have to play irritating commercials (also increasingly as they have to generate ad revenue to keep afloat) and that they just don't have the resources or content that Sirius has to compete.

    Sirius has locked in contracts with the record company's until 2013, so we are the clear winners here.

    Goodbye pandora

    Cheers,
    -Whynot

  4. #4
    clueless is offline
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    I am not saying that I agree or disagree just want to point some things out and ask some questions.

    1. Why is the fact that they are a small company hurt them? I would think it helps them. Less people to pay means less overhead and more profits.

    2. They have always played commercials. That isnt new.

    3. You say Sirius is locked in until 2013 but these new lower rates for Pandora are not only lower but they are locked in until 2015. If being locked in for 4 years is a good thing than being locked in at lower rates for 6 years should be even better.

    Seems to me like you are pointing out benefits for Pandora and not detriments.

  5. #5
    Whynot is offline
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    Quote Originally Posted by clueless View Post
    I am not saying that I agree or disagree just want to point some things out and ask some questions.

    1. Why is the fact that they are a small company hurt them? I would think it helps them. Less people to pay means less overhead and more profits.

    2. They have always played commercials. That isnt new.

    3. You say Sirius is locked in until 2013 but these new lower rates for Pandora are not only lower but they are locked in until 2015. If being locked in for 4 years is a good thing than being locked in at lower rates for 6 years should be even better.

    Seems to me like you are pointing out benefits for Pandora and not detriments.
    Good points, let me attempt to clarify:

    1) As a small company, they do not have the financial, personnel, capital raising or celebrity endorsement/content capabilities that SIRI has. This limits them to the same old music streaming potential that they've always had and I doubt (IMHO) that they will have any major suitors to assist them with creating enhancement to any of the above mentioned challenged that their business and business model faces. Additionally and to my point-....less revenue=less profits.

    2) Their commercial air time is going to significantly increase if they are going to stay above water, as they obviously need the ad revenue for business continuity. The more commercials, the more irritation to their listener base, the more people will see what a premium radio/entertainment service provider like SIRI is. There will then be even less ability for pandora to liken their services to SIRI.

    3) I don't think,I KNOW SIRI is locked into their royalty rates until 2013, it's not conjecture. Having looked at the previously mentioned post on pandora's new royalty/revenue sharing agreements, I can tell you that by no uncertain terms SIRI has a much better deal.

    If you think the above facts are in pandora's favor, then I apologize for my inability to clarify my points.

    Cheers,
    -Whynot

  6. #6
    clueless is offline
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    1. I still think the fact that they are small is a good thing. As you point out, they may not have the same leverage or celebrity power as sirius xm which is why they need to stay small.

    2. They have no plans to increase commercials and I havent noticed a change. You say they will need to increase commercials to "stay above water" but they were on track to make cash this year with the old higher rates in place. In the press release they talk about charging $1 to power users and never once mention having to increase ad spots.

    3. I KNOW that sirius xm is locked in until 2013 as well but like I said, if that is a good thing being locked in at a much lower rate than what was expected until 2015 is still great for Pandora. Sure Sirius XM pays less and their deal is better but Pandora's deal just got 50% cheaper and is locked in for 6 years. Although the people at Pandora wanted an even better deal, its hard to imagine that a 50% cut in rates and locking in for 6 years is a bad thing. Over the last 2 years it was Pandoras only concern. Every satellite radio website talked about increasing royalty rates to no end, saying that these companies will never survive. Well, guess what? Not only did the royalty rates not increase, they were cut in half and locked in for 6 years.

    Now you tell me, how could Pandora possibly be in a worse position than they were a year ago? Oh an by the way, after only a couple of weeks at the top, Pandora is about to pass the Sirius XM iPhone app and will hold that position at the top of the music apps just like it did all last year.

  7. #7
    SiriusBuzz is offline
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    I think it only makes sense that soundxchange set the rate at a level that they can continue to make money while not driving Pandora out of business. Why would soundexchange set the rate at a level where Pandora can not afford to pay it? If Pandora flops, soundexchange loses. Unfortunately, I think these new adjust rates make everyone a winner.
    Charles LaRocca
    SiriusBuzz Founder

  8. #8
    SiriusBuzz is offline
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    Pandora just got its biggest round of funding ever. I guess a few VC's are fans of the new royalty agreements.

    http://www.techcrunch.com/2009/07/10...ate-agreement/
    Charles LaRocca
    SiriusBuzz Founder

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