By Brandon Matthews
Yes, it’s true. Webcasters have reached a deal with the recording industry that offers them a temporary reprieve, much like a death row inmate that has been granted a stay of execution. In the end however, the result will be the same in my opinion. Both the inmate and streaming radio sites will cease to exist.
My initial reaction upon reading the terms of the deal was one of immediate skepticism. The deal allows for a lower rate than the proposed .19 per song that had been established; reducing the flat rate to a staggered rate of .08 cent for songs streamed in 2006 and increasing to .14 cent in 2015. The net effect is that companies like Pandora will be able to continue to operate for the near future, although it is clear to me that long term prospects remain bleak for such webcasters. The incentives to grow are now gone. The more the company grows, the more it pays.
Apparently, Pandora agrees. The company has just announced a new plan to begin charging its users on a monthly basis. The initial fee calls for users to be charged only .99 per month for the 10% of its users that listen to Pandora for more than 40 hours per month. Limiting access will certainly harm the ability of the company to sell advertising space. To be blunt, a dollar is not nearly enough to keep the company afloat and will result in a loss of subscribers. Once the unlimited free aspect of the service is removed, users of such services will be forced to look elsewhere.
As ad revenues decrease (and you can bet your bottom dollar that they will), the costs to consumers will have to increase. Pandora (and Slacker for that matter) are now playing on an even playing field with Sirius XM Radio. Neither can match the Satellite Radio provider’s exclusive content.
Already Sirius XM’s iPhone and iPod Touch application have become the most popular music download at Apples iTunes store. Other applications will soon follow. Recently it was suggested that Sirius XM Radio could begin offering A La Carte channels as well. I see this as very likely. Such a move would further erode the listener base of free webcasters.
In the end, it has again been proven that free is never a good business model.
Position Long SIRI
I bet this article won’t hit the mainstream sites……only the Pandora/Slacker pro articles will…..By the way – what’s Pandora’s annual revenue? 10m? If this was such a great service, some big entertainment media would have snatched them up already.
From Tim – Founder of Pandora…..
‘The revised royalties are quite high – higher in fact than any other form of radio.’
Thanks Brandon – I always look forward to your articles…and insight…
mdstden, as predicted, AOL finance hasn’t picked up Brandon’s article. However, they have managed to post the more positively spun “Copyright Holders Make Nice With Web Radio” twice, as well as attaching the same article another two times, making the pro Pandora article available for your viewing pleasure four times – you know, just in case you missed reading it the first time around.
BTW, it mentions that Pandora’s revenue for 2008 was $24 million.
@JJ Go figure…. I think another headline for Brandon’s article could be ‘Pandora begins to nickle and dime their customers – higher fees on the horizon’…..
what they can do is work out a subscription price that would keep them profitable. but they have no content,only a library format.siriusxm is real radio.Sat radios installed in every new car.people pay through the nose for cable tv, when they can get free tv.the fm button on these modern Sat. radios will be used as much as the am…not at all.
Free services can only be free for so long. Once the company makes the transition from free to pay, it will be walking on thin ice. Just look at MySpace as an example of companies that try to generate revenue with free services…
whats whittleing down siri today,like mice chewing through the wall? i see 100, 200,300 blocks being thrown around like wooden nickels.we all know this stock deserves to rise. what can we longs do to fight back?….this is not profit taking,or is it? 100 shares @ .05 x .40….and so on up the line…7,10,15 cents.seems reasonable.i think longs have a solid good investment here.siri stock seems to have acquired some meat on its bones.buy the dips,look foward to $1.00.
These positive spin articles mean nothing long term. If nobody buys your product, eventually you go out of business!
This site is free. Google is free. Will you and Google be going out of business soon?
It’s quite a simple concept, isn’t it–attract users to a site to sell advertising space. If Pandora attracts enough users, it pulls in enough ad revenue, and can pay the royalty bills. If it can’t, it can’t.
Do any of you have Pandora accounts? Have you canceled them? It’s actually a great service. Different from Sirius, which I also have, but a great service none the less. And I don’t think it will be going anywhere anytime soon.
when you hit genius, you really hit genius…only article on this pandora rate issue that hits the mark!
>>>The incentives to grow are now gone. The more the company grows, the more it pays.<<<
what don't the other analysts, reporters, authors and bloggers get about this? another well know blogger (you know him, so I won't mention his name, but someone I usually agree with more than I agree with you) thought this fee decision proved that this ensured that pandora would be profitable…I agree with you, pandora is dead long term in its present form.
yes, I have a pandora account, and any advertiser that pays to advertise to me is crazy because I have never seen any advertisement on pandora…as I have said before, as soon as Siri-XM has a Palm Pre App, I will switch to using Siri-XM on my Palm Pre instead of Pandora. And, I have no use for pure internet radio, and even if I did, I would use my online add-on Siri account any day over Pandora.
When you hit genius, you really hit genius…only article on this Pandora rate issue that hits the mark!
Brandon states that “The incentives to grow are now gone. The more the company grows, the more it pays.”
What don’t the other analysts, reporters, authors and bloggers get about this? Another well know blogger (you know him, so I won’t mention his name, but someone I usually agree with more than I agree with you) thought this fee decision proved that this ensured that Pandora would be profitable…
I agree with you, Pandora is dead long term in its present form.
@shark
All companies incur more expenses as they grow. Should Sirius stop installing radios in cars because it drives up costs?
Have you ever thought that everyone else might have a point, and it’s not a giant conspiracy?
I still think Sirius should offer a “Slacker/Pandora” option in addition to their great original live content. Especially in lieu of this news. If Sirius did this, they’d have the best of both platforms and make the likes of Slacker and Pandora pointless.
Anyway…changing the subject slighty…did anyone read the great article in Rolling Stone about Goldman Sachs being behind all the market bubbles and crashes since 1920 by Matt Taibbi? He responded to critics of his piece with this follow up: http://trueslant.com/matttaibbi/2009/06/30/on-giving-goldman-a-chance/
A MUST read for all Sirius investors to be sure.
This article exposing GS….along with the recent news about their software(which helped them cheat the market) being stolen has been fun for this Sirius Investor. I only hope they get whats coming to them. They are truly evil incarnate….and I NEVER use that word.
Peace out.
Your rates are wrong. According to Allthingsdigital it’s
.0014 not the .14 you have but it’s still bad news for Pandora IMO
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.
Sirius is the only truly dynamic music choice. It offers a service second to none, and it only keeps getting better. Pandora’s biggest problem is that it is static (plays the same stuff over & over). Pandora, or any other similar service for that matter, will ultimately have to face the impending question, “in order to grow any further, when (not if) will we have to become a dynamic music company, as this is what people ultimately want, & where the big profits are located.” If they do not eventually change to a dynamic structure, in the end, Pandora & the rest of the static airwavers will only fill a niche within the radio communications business. Sirius WILL rule the market.
Even if their static business models change to dynamic, they will be so far behind Sirius that it will be to late to play catch-up. Sirius will already have contracts with practically all the auto, rental car, & yes, airliners (as this is the next logical step to their expansion), & will be a pure cash-flow monster. Additionally, Sirius is the only one even remotely capable of globalization, of course, unless the other static services are willing to put up a few million receiver towers around the world. I don’t think Pandora or the other static companies budgets can support this (only $24 million in 08, & now have to pay 25% of that or greater). Bottom line, Sirius will be everywhere & will have practically cornered the market.
My not-so-far fetched, non-conspiratorial prediction: Pandora & the likes will survive, but only fill a niche in a world dominated by Sirius (much like the old folks who were perfectly happy with their 13 channel dial-a-knob analog TVs…but even they were forced to convert).
The main-stream media had their chance to kill this threat, & almost did, but thanks to Mel & his team, Sirius has toughed it out through the worst & they continue to grow each day.
Sirius is the next media mega-giant. I want to be along for that ride.
Position: Long SIRI
JJ pretty much sums it up!
Please explain “inmate stations”. If it’s what I’m thinking, that’s hilarious — but I’m not certain that’s what you meant. So what is your meaning? Thanks!
@sense100
That’s nonsense100 — I dig Sirius/XM radio, but I switch to FM and AM radio to get real local news and broadcasts. Some of the Sirius/XM channels begin to sound just as boring as the ‘net radio “libraries” you mentioned.
Sirius replaces radio; Pandora replaces CDs. Pandora is not trying to be dynamic, but simply creating a site for people to create their own playlists. People want both, and 30 million Pandora subscribers and 18 million Sirius subscribers agree. JJ is making a big assumption when he says:
“Pandora, or any other similar service for that matter, will ultimately have to face the impending question, ‘in order to grow any further, when (not if) will we have to become a dynamic music company, as this is what people ultimately want, & where the big profits are located.’”
You’ve done the research on “what people want”?
“FREE” gets expensive…enough said…GO SXM GOOOOOOOOO
Satellite radio …..will be the standard
Pandora….. a passing Fad
IMO
It’s always amused me when people brought up pandora as a threat to siriusxm. The fact that any logical human being would bring that up just shows the extent of the negative sentiment against SIRI. It’s like saying web tv is a threat to cablevision with emmy award winning shows on HBO,Showtime,Cinemax etc…Hopefully this is the last I have to hear about “pandora” in regards to satellite radio.
I beg to differ with you “learn to think”. Perhaps you should take the advice of your own screen name.
Not to be rude…but Pandora and Slacker cannot be so nonchalantly dismissed. I agree that Sirius is better. But the fact is Pandora and Slacker are taking ears away from Sirius. The youth and some adults either because of laziness or the economy find it easy to just use these free services. As sucky as you may think they are(and I partly agree)….they still are finding an audience.
Sirius has so many more advantages, and I do feel they will win out in the long haul….HOWEVER, it would make GOOD business sense for Sirius to deal with them head on.
Am I the ONLY one who thinks that NOW would be the perfect time for Sirius to announce the launch of a “Slacker/Pandora” like service where people can create their own radio stations in addition to their already great original live content?
Although this “seems” like a better deal for Pandora and it’s ilk…25% is a HUGE chunk especially when they aren’t generating the kind of cash Sirius is. Right now Pandora is on the ropes. This would be the PERFECT time for Sirius to land the death blow. POW!
Seriously, people seem to like the “create your own station” platform. So why not give it to them? Pretty soon Pandora is going to have to start charging people and adding more ads. Now is the time for Sirius to strike. To make it’s presence known to the young kids who seem to download the free Pandora. Sirius already has the best live commercial free content and cross country coverage. Why not add this feature to their service and totally CRUSH Pandora and Slacker. It would take nothing more than a simple update to their itune app software.
Sirius can BEAT Pandora and Slacker at their own game.
Plus people who already enjoy Sirius I am sure would like this feature. Lets say they hear a cool song they like, they can then create a station of that artist to sample other songs….as well as BUY them from itunes. It’d be the PERFECT multi layered solution. Sirius would truly become the dominate Radio service. No one would be able to touch them.
I dunno. Just thinking out loud. I am surprised this isn’t talked about more in the forums and by the other Sirius shareholders more. It’s like the mere thought of being like Pandora is an offense or something. I’m not talking about Pandora being better. Trust me…it ain’t. I am talking about a SMART business move. A move that would ENHANCE the Sirius experience and make it the MUST have radio play out there.
I’d be so excited if they did this. Not only as a Sirius subscriber….but as a shareholder.
Peace out.
Great point Bubba! I agree with you regarding that Pandora and Slacker are to be reckoned with and not blown off as not a threat. No they are not a “takeover” threat to Sirius but they are cutting into potential subscribers/profits of Sirius and that has to be contended with. If Sirius could shut them down it would further promote the Sirius cause. Sirius and the Pandoras are not the same thing and are essentially different machines but they do overlay each other. That overlay is potential dollars to be gained and added to the bottom line.
@Brad
What people want is obvious. 30 million Pandora subscribers who signed up for free, & 18 million SIRI who pay. Or to put it another way, nearly 2:3 ratio pay for SIRI, which speaks for its content, as opposed to Pandora, which is free (excuse me, was free). Pandora’s subs will drop when people start getting hit with the bill. However, they will not entirely fade, only fill a niche. I personally like Pandora, but I wouldn’t pay for something when I can just hit random shuffle on my hard drive.
Bubba-ho-tep said it well, all SIRI needs to do is easily produce a feature similar to Pandora/Slacker, & they are practically done.
SIRI can easily duplicate this. Pandora/Slacker cannot duplicate SATRAD.
Thanks Sirius Lee. That is my point exactly. ALL Sirius has to do is create a similar Pandora/Slacker feature and it’d be GAME OVER. There is NO doubt in my mind. Zero.
Look. Terrestrial radio is dying. SiriusXM is in a GREAT position. They can DOMINATE the car and the internet in one fell swoop. Now is not the time for them to rest on their behinds. They could CRUSH Pandora and Slacker almost immediately if they do this. I am completely convinced.
The iphone/ipod app was a good first step into the internet….but now is the time to crank it up. By doing this they’d steal away MOST of those Pandora/Slacker people. I know they could do it better. And by luring all those MILLIONS of people away and into the Sirius tent, it’d be THAT much EASIER to convert them to pay up for the FULL service with all the great content.
It’s all about perception. And if people think Pandora and Slacker are cool for whatever reason…Sirius has to ATTACK that. Because if they do, then there would be no reason to stay with them. SiriusXM would be the coolest around because they do ALL that Pandora and Slacker do and MORE. Perception is EVERYTHING…especially with the youth market.
From there, they’d realize SiriusXM is more versatile. They could pimp out their ride with it. Listen to sports and talk and live concerts and on and on….PLUS have the service that USED to make Pandora and Slacker unique.
Bottom line, Sirius can EASILY mimic the Pandora/Slacker experience, but they could NEVER mimic the SiriusXM experience. Once the youth realized this, they’d never go back to Pandora. It’s all about the “cool” factor.
If SiriusXM starts this now….plants the seed now….then by the time they have the free cash flow to spend on a kick ass advertising campaign to hit home this point, it’d have already taken hold. The advertising campaign and tv commercials would only add the icing. They could then use popular music artists in all genres to appear in the commercials and SiriusXM would be the Mac Daddy of Radio.
I’m just one of many passionate subscribers and shareholders. If I can see this and articulate it so clearly…then SURELY Sirius management MUST be working on it. It just seems too obvious to ignore. Any college grad with a business degree could come up with this plan.
I dunno. I guess we’ll see what happens.
look at sirius website they are looking to hire someone who can perform these issues.
go check for yourself.
The inacuracies and assumptions made in this article are staggering to say the least. To see people blindly accepting this as credible is worrying.
$1 buys you over 700 songs. To “be blunt” the whole basis of your argument is flawed. Not only does $1 more than cover cost but people who are already listening 40+ hours (fans) are going to be more than happy to pay $1 for this service. You think Pandora came up with $.99 because they want to lose money? No, they came up with a buck because on average it will more than cover the royalties. Do the math.
On top of that the other issue you cite that fact that as their rev increases so will what they have to pay, Sirius XM has the same deal. The more they make, the more they pay in royalties as well.
Sirius could “easily” recreate Pandora? Sirius could hardly get an iPhone app out. You can’t glibly state how easy it is to put together a system requiring serious engineering, negotiations, ad sales teams, etc….Sirius has no cash for that and would be about a year more behind Pandora.
I love Sirius, but John is right, people need to be a bit more cautious about what they buy into about Sirius from this site.
One last point…did you ever think that Sirius creating a Pandora-like FREE offer might cannibalize their own sales? Sirius hasn’t made a dime in their existence, and you want them to start a new business model and give their music away for free?
These comparisons between pandora and sirius are pretty amusing. Of coarse Sirius is better, and if Pandora does convert to a pay to listen service Sirius will likely steal a good number of its subscribers.
But as of now Pandora is FREE…
I haven’t paid for a CD or itunes song since 2007. I even dumped all of the music off my iPhone and just listen to pandora when I want music. Driving/working out/studying/going to bed, I have a playlist for just about everything I do…which is why I will miss Pandora once it starts this “40 hours” deal.
All I can do now is wait
@Brad get off of this blog you short/pandora lover – we only want to see positive news about Sirius….go get on the mainstream site blogs where you can read something totally absurd and innaccurate – you and John Wills must be one and the same blogger.. kind of interesting how both of the negative comments were back to back… makes this layman a bit suspicious….
@mdstden
You only want to see positive news about Sirius..ha!…what is this now, a Mormon cult? Come out of the dream world, douche bag. I AM positive on Sirius; this article is just ridiculous about Pandora. By the way, I own 75,000 shares of Sirius..LONG and still buying since 2005. Never met John, but he’s one of the only other people trying to bring reality back to the discussion. Why don’t you try to dispute any facts brought up?
Or would you rather just have some more “best article ever, Brandon!” comments like he usually gets?
@Brad
There is no need to dispute facts, only opinions. While disputing opinions, there is such a thing called tact, & absolutely no need to belittle people or flaunt how many shares you have. You sir, are a child.
yeah the am botton lives on, give it 10 minutes it will give you the worlds news.all well and good.i harbor a nostalgia for am. when i was a kid it was the one and only source of radio.i recall looking at that radio in the dash and thinking wow,….that was probablly some great investment but alas over and past, before my time.and look whats happened.a second go at it.
@JJ Thanks JJ…I never really have considered myself a douche bag…dreamer… yes…once we stop dreaming the party is over…. oh by the way I’m a practicing Methodist and have nothing against the Mormans – Julianne Hough is a Morman, terrific dancer and cute if I may say so….
I flew 79 combat missions in Iraq, & one of our most valuable pieces of communication was the newly issued SATRAD to our arsenal of 5 radios. The SATRAD was our baby, but this first generation piece of tech was clunky, & needed to be updated. Imagine if SIRI could acquire a government contract – lock a few frequencies into a secure military bandwidth – the profits would flow.
sirius applications seem unlimited
@JJ Now that is an interesting thought….pretty tough for an enemy to hamper/bomb communication facilities when they are in space….
lets rebuild the economy around sirius xm. its the only potential growth story in town. all 9 billion shares should collude to rapidly drive up this golden gooses share price for the benefit of all.including those brokerages buying and selling their 100 lots like mad commision free.
sirius 1.00 please.
tomorrow will do. i can wait
All aviation communications can be combined into one tiny SATRAD. This would simplify aviation, & reduce cost to the Gov & the tax payers by reducing weight & therefore fuel costs. Maintenance would also be reduced to a minimum. Aviation comms would reach its pinnacle with this tech. Pandora/Slacker can’t do this, unless you plan on listening to Jimmy Buffet on an approach to Baghdad International.
SIRI is also the only one available for Space comms.
SIRI is the only comms service that has the potential for unlimited growth. I see Government contracts in the mid to longterm. But first they need to take care of their 10-meter target & practically shut Pandora/Slacker down w/ a similar service.
BTW, wasn’t an ex board member if SIRI recently named Obama’s chief of technology? Mmmm………
http://www.p2pnet.net/story/24830
@Brandon Matthews
Great find!!! betcha won’t find that article on the mainstream sites!!
Brandon, if Pandora is so screwed, how do you explain them getting their biggest round of funding just hours after the new royalty agreement was announced? Seems as though the guys with the cash think this new reduced royalty rate is just what the doctor ordered.
http://www.techcrunch.com/2009/07/10/confirmed-pandora-raises-a-huge-round-post-streaming-rate-agreement
I eagerly await your response.