Pandora: These Numbers May Surprise You

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For years, Tim Westergren was on the front lines of a difficult royalty battle.

But instead of becoming a casualty, Pandora and other internet radio providers managed to forge a workable rate structure – at least one that kept the lights on.

But this is still one huge royalty bill, and Pandora is now one of the biggest contributors.  Just recently, Pandora disclosed top-line, 2009 revenues of $50 million, but royalty obligations to SoundExchange alone (a cost that does not include publishing) topped $28 million, according to Westergren.

The bigger Pandora gets, the bigger its royalty bill, a variable cost structure that makes it difficult for many content-based business to scale.

Either way, Pandora is a serious chunk of total SoundExchange royalty revenues from online radio.  Despite all of the wrangling over non-interactive royalties on recordings, Pandora now accounts for roughly 44-45 percent of total SoundExchange royalties for non-interactive streams, according to details confirmed by both companies.  “We’re about 44 percent of internet radio,” Westergren told Digital Music News.

Beyond that, Pandora represents a very important one-percent of broader radio royalties.  “We’re a shade over 1 percent of the overall radio marketplace,” Westergren continued.  “Multiply that by 100, and you get the found revenue flowing to labels and artists if we were in an internet radio world instead of a broadcast world.”