Pandora Will Have to Pay HOW MUCH to Relaunch Rdio?

 

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.

13 Responses

  1. Me2

    It’s new licences that Pandora should be asking for, so why are they presenting it as an ‘opt out’? They’ve got it (conveniently) backwards.

  2. Blah, Blah, Blah,

    Tilted speculation, speculation and biased conjecture….

    Meanwhile NOT ONE WORD about Pandora’s new, multi-year deal with both ASCAP and BMI.

    What a “news” outlet!!!

  3. Vail, CO

    All that bad will Pandora has built up… gonna bite them in the ass big time

    • Anonymous

      Really? Because it doesn’t seem to have slowed them down at all. All that trouble with publishers/songwriters and now they are striking deals left and right and with both ASCAP and BMI.

      • Vail, CO

        Not really. Publishers are used to that problem. They live and die by government statutes, they’re penny-stream is based on a government handout, so they take the good with the bad.

        Labels, recordings? Those guys are hustlers, they’re not trying to be reasonable. They want one thing:

        $$$$$

        Any questions?

        • Santa Clause 115

          Also the give was from Pandora. They took BMI deal. Gave up lawsuit.

  4. s7

    Same thing happened with Netflix. Users wanted more content and Netflix increased their prices. People whined, but they have to pay for the content somehow.

  5. Casey

    They will pay way too much. If I was a share holder I would be outraged. $75 million (and a lot more than that by the time it is all said and done) and they still won’t have anything launched until the second half of 2016 and they will have to start with 0 subscribers. By that time Apple and Spotify will have soaked up the majority of potential subscribers and will probably be battling it out for exclusives. Something Pandora won’t be able to compete in.

    Pandora needs something now. But they have yet to even make any worthwhile enhancements to their radio service in the last 5+ years. This company has dug itself into a hole and apparently they hope to spend their way out of it. That doesn’t usually work when your balance sheet has been almost completely red since you go public. And it is looking like 2016 will have more red than ever.

    • Paul Resnikoff

      That’s an important point, Rdio v2 is a ways away. Court proceedings can be extremely lengthy, depending, which could put it longer.

      Looking at this, I wonder what else Pandora could have done here. With Rdio, you have a really nice interface, with a codebase that was probably solid. What are the other options? Building an on-demand platform is a substantial undertaking, though I hope a plan was on the table at least. Others on the market include Rhapsody, which is struggling in fourth or fifth place, perennially, and losing money. Maybe even Deezer, who knows who’s game these days.

      But, a lot depends on how solid these platforms are. All three have certainly been road-tested, maybe this was the ‘cleanest’ way to go about it, given that you can flush out the excess (employees, infrastructure, liabilities, etc.) and the deal is contingent upon successful bankruptcy proceedings.

      • Troglite

        Rdio appeared to have significant technical advantages as a streaming platform, especially compared to the original Beats service. The Erlang codebase should provide a solid foundation for Pandora to build upon…. although there is always plenty of opportunity to fuck it up within these acquisitions.

        I wonder who else was bidding on those assets besides Pandora?? That competition probably has more to do with the price Pandora paid than any business plan. I wouldn’t be suprised if at least one competitor intentionally bid the price higher just to make the deal less favorable for Pandora. Their balance sheet may suck, but Pandora has a large, loyal audience in the United States that represents a significant threat to any competitor.

  6. AudioNomics

    Artists should join me in destroying any/all copies of their unreleased works.
    No pay? No play!
    Keep the art locked up in your head and not your hard drives… fuk the man…Fuk the leaches.
    Fight back with the one thing they can’t seem to do without. Unless/Until favorable conditions exist keep it locked up! Why make the thieves / silicon valley IPO fukwads richer trading on our labor.

    No pay? NO PLAY!!!