As of Tuesday, Rdio is officially going dark while it sifts through court-supervised bankruptcy. It’s the end of an unspectacular run that witnessed huge gains for Spotify, Apple Music, Soundcloud, and others, and little traction for smaller contenders for Rdio. Whether Rdio survives the sometimes messy bankruptcy process is anyone’s guess, though Pandora has already committed $75 million to resuscitate things on the other end.
The obvious question is whether this complicated acquisition is worth it, or whether a cleaner buyout or self-build was possible. Already, Pandora is getting a lesson in how difficult and expensive this may be. Immediately after announcing its planned acquisition, contingent on successful bankruptcy proceedings, Pandora was forced to commit millions to keep critical processes alive and paychecks mailed.
“…every licensing nightmare experienced by Spotify, will likely be the same or worse for Pandora.”
That, alongside outrageous over-spending and cash burn, would make any investor or shareholder concerned, though Pandora now faces a far steeper expense ahead. Instead of government-regulated internet radio rates, on-demand streaming requires direct recording licenses, with major labels almost guaranteed to charge a king’s ransom. Indeed, every licensing nightmare experienced by Spotify, will likely be the same or worse for America’s biggest online radio station.
For starters, Pandora is probably looking at tens of millions of dollars — per major label — just for upfront guarantees. But more critically, big labels (and, their publishing counterparts) are likely to demand sizable equity shares in Pandora itself, similar to arrangements made with Spotify. According to some insider estimates, major labels collectively control more than 15% of Spotify, if not more. Other payouts could come from advertising itself, with leaked documents showing that Spotify handed out lucrative, preferential ad slots to at least one major.
Already, Pandora is reaching out to independent labels regarding their content, specifically to maintain Rdio’s storehouse of stored and encoded content. The following letter, shared exclusively with Digital Music News, reveals Music Reports as a licensing and management partner, with easy opt-outs for content owners that don’t want to play.
Meanwhile, Pandora is pushing aggressively forward with its direct licensing strategy, a better method for broader licensing. Just this morning, Pandora inked another direct partnership, this time with Downtown Music Publishing. That will allow greater content flexibility, with fewer usage restrictions: “Pandora will benefit from greater rate certainty and the ability to add new flexibility to the company’s product offering over time,” Downtown offered in a deal description to DMN.
But the deal won’t do anything for Downtown artists on the publishing side, and that includes on-demand streaming. Those expenses, whether indie or major, are likely to be extreme, and quite possibly crippling.