Talk about bittersweet: Pandora radio is one of the most popular online music services out there right now, with its user base growing almost perpetually since its inception. The company is also struggling to implement a model for long-term profitability, as advertising revenue (which comprises ~88% of their total revenue) isn’t enough to reliably cover costs, which include payments to SoundExchange (representing artists and labels) and organizations like the American Society of Composers, Authors and Publishers (ASCAP), who collect licensing fees on behalf of its members.
Even worse, the money that Pandora necessarily has to pay in “compulsory” licensing fees only increases as the number of listener hours increases, so in a sense, the company is digging itself in even more of a hole the more “successful” it becomes — unless they can hire the Gandalf of finances and accounting to come in and figure something out. As Forbes points out, “Pandora, in fact, has never been profitable, with more than $105 million in losses over the five fiscal years ending January of 2012… it has a business model that is fundamentally broken right now.”
Sad news. I know what you’re thinking; time for Pandora to start suing people, right? In a lawsuit filed on Monday, Pandora accused ASCAP of charging fees discordant with what it’s charging other organizations/companies, such as the Radio Music Licensing Committee, who represent competitor iHeartRadio (owned by Clear Channel). In a conversation with Billboard, a Pandora spokesperson said:
ASCAP continues to seek rates higher than the current rates and above the agreement that they reached earlier this year with all of the major radio groups, which covers both broadcast and Internet radio usage for the majority of our competitors. As a result, we are initiating the process that has been in place for decades to resolve royalty disputes with ASCAP.
The interim rate that Pandora is currently paying expires in 2015, at which point the license will have to be renegotiated anyway. Oh, innocent Pandora, you’ll still be around by then, won’t you?