Both messages are a result of long and tortured negotiations with record labels that have finally come to a close with a deal Pandora says it can live with, though it’s different than the one founder Tim Westergren said the site had nailed down in November. The flip side is that the service will now require users who listen to the service for 40 hours a month to pay 99 cents if they want to hear any more tunes that month.

And the big picture is that Pandora, which has been warning of its doom if it was required to pay steeper royalty rates, can switch gears and brag about its growth. Westergren tells me the service is motoring at a great clip–he says it is on track to generate $40 million in revenue this year, almost all of it from advertising, up from $19 million in 2008–and it can now accelerate.

“I think that this is going to have a really huge impact,” he says. “We’ve been talking about going out of business for the last two years, and that’s not good for growth.”

The new arrangement might also convince investors to cut the service a big check. Earlier this year, multiple sources told me Pandora was looking to raise a very big round, perhaps in the $40 million range, and was talking to private equity shops about a deal. Westergren wouldn’t talk to me about fund raising, but it’s fair to assume that his company looks more attractive now than it did in January.

As for the deal itself, I’ll spare you the details, but in essence it’s a straightforward rate cut. The deal requires a lower per-song fee than Pandora and other Webcasters were supposed to pay under the terms the Copyright Royalty Board signed off on in 2007. It’s retroactive to 2006 and calls for an increase every year up through 2015.

The new deal means Pandora will be spending more than 25% of its revenue on royalties, but it will still be paying less than it would have under the old rules. Under the original terms, for instance, Pandora was supposed to shell out 14 hundredths of a penny ($.0014) per song streamed, per listener. Now it won’t pay that rate until 2015. Meanwhile tiny sites with less than $1.25 million in annual revenue will have a different structure.

The downside is that the deal will require Pandora to tax its heaviest users since it is still paying a per-song fee. “There’s a very small percent of listeners who are using it a ton, and that’s great, except when you’re paying per song,” Westergren says. He estimates the 99-cent fee will apply to a a “single digit” percentage of its 11.5 million monthly users.

Pretty self-explanatory, but I do want to commend the gents at IAC’s (IACI) video factory for:

1. Trying to broaden their demo to include theater people, as well as parents of theater people and parents of College Humor fans. And…
2. Using some SEO savvy. Name-checking Twitter, Facebook, Evite, eHarmony, Pandora and other Web favorites should help make up some ground this will lose on Digg. Where I assume most users will be bemused, at best.

]]> http://mediamemo.allthingsd.com/20090629/sharks-jets-page-views-web-site-story/feed/ 0 http://mediamemo.allthingsd.com/20090604/hey-ladies-heres-the-first-palm-pre-ad/ http://mediamemo.allthingsd.com/20090604/hey-ladies-heres-the-first-palm-pre-ad/#comments Thu, 04 Jun 2009 18:03:59 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=7954 Last week at the All Things D conference, Palm (PALM) investor Roger McNamee made a point of touting the Pre’s supposedly female-friendly attributes — like the fact that it has a mirror on the back. No mention of the shiny surface in this first TV ad touting the new phone, but this one certainly seems geared toward the xx set. Or maybe Palm has been stung by accusations that it’s an Apple (AAPL) ripoff and wanted to come out with some distinctly un-Jobsian marketing. You got me:

Note the nice shout out for Internet radio darling Pandora, by the way. Is there any mobile handset or carrier that doesn’t promote the music service?

Since everyone wants to weigh in on the state of online music service, imeem, let me add in my two cents: The once-buzzy start-up isn’t on life support yet. But it sure could use some help–just like every other Web music player.

I can confirm that the company has sought, and received, new terms from some of the big music labels, most notably Universal Music Group. One big label that hasn’t given imeem any concessions yet: Warner Music Group (WMG), which owns an equity stake in the company.

Wired.com has a nice summary of the reason imeem needs new terms from the labels. But the short version is that the original deals it had in place meant it lost money every time someone played a song. And that the more popular it got, the more it lost.

That kind of business plan isn’t out of the ordinary for Web companies that struck deals with the big music labels–even Google’s (GOOG) YouTube has a similar kind of arrangement. But those deals, which were supposed to make sense once the online advertising business kicked into gear, are also obviously no longer sustainable.

The big picture: imeem went looking for buyers last fall–at the same time that its venture investor Sequoia Capital began lecturing start-ups about the need to cut costs–and hasn’t found any.

That puts Imeem in the same boat as every other notable online music service, including iLike and Pandora, all of which have been looking for money or an acquirer during the last six months.

One of them–Spiralfrog–finally shut down earlier this month. And if the other start-ups can’t get the labels to cut them some deals, Spiralfrog will have company.

But just in case you weren’t convinced, here’s some new data from NPD Group:

• CD sales dropped by 19 percent last year.
• The number of U.S. CD buyers  dropped by 17 million last year.
• The number of music buyers dropped by 13 million last year.

Only the last number is noteworthy. Because while NPD says that digital music downloads increased by 29 percent in the last year–good for Apple (APPL)–the research firm also notes that many Americans have simply stopped paying for recorded music, period.

Up until last fall, music optimists would argue that this was OK, because people were more engaged with music than ever. Semi-true cliche: The music labels are in trouble. The music business is doing just fine.

And indeed, NPD throws out a series of stats which show that more people are listening to free music provided by the likes of Pandora, iMeem and News Corp.’s (NWS) MySpace Music. But all of the sites that are providing free music are having a very hard time figuring out how to make a business out of it. It’s quite likely that we’ll see some of them fold or sell out in the next few months. Stay tuned.

Note: News Corp. owns Dow Jones, which owns this site.

A final deal between the Digital Media Association, which is representing the Web sites, and SoundExchange, which collects royalties on behalf of the music labels and other copyright owners, isn’t expected until later this year. But “the hard stuff has been done,” says Pandora founder Tim Westergren, who has become the public face of Webcasters during negotiations.

In September, Congress agreed to let the two groups hash out new terms that would replace the ones that the government-appointed Copyright Royalty Board signed off on last year. Since then, Web radio sites, led by Pandora, have bitterly complained that rates would force them out of business.

The existing deal calls for Webcasters to pay an escalating fee to copyright owners every time they play a song for a listener. This year, for instance, Web radio stations are supposed to pay 14 hundredths of a penny ($.0014) per song streamed, per listener; site operators figure that will cost them about 2.1 cents per user, per hour.

That doesn’t seem like much, but in order to cover those fees alone (before bandwidth and other costs), operators would need pull down many more advertising dollars then they’re getting now.

Site advocates figure they’d need to be able to generate a so-called CPM rate of about $21 for every thousand visitors (over the course of an hour) under the current fee structure. That’s a hard rate for big professional Web sites to achieve. And since users generally turn on a Web radio station, then look at other sites while it runs in the background, the format is a tough sell for ad buyers.

So what’s the new rate going to be? Westergren wouldn’t comment, except to argue that the compromise still calls for “tremendously unfair” payments when compared to the fees paid by satellite radio operator Sirius XM (SIRI). That company is supposed to pay between six percent and eight percent of revenue between now and 2012.

What about conventional radio? Those stations don’t pay a penny for so-called “performance” royalties, though the cash-starved music labels have asked Congress to change that. Good luck!

The big question: Will the new rates allow Pandora, and the many smaller Webcasters, to surive? Westergren says Pandora is on track to generate $20 million in revenue this year, but he wouldn’t say whether that would allow him to break even with the new proposed rates.

But Web advertising in general is under pressure, and ad buyers say that their clients are increasingly skeptical about trying out “experimental” mediums like Web video. So unless the rates get very, very low, or Westergren’s company has hired some very, very persuasive sales people, it’s going to remain a struggle.