Pandora

Pandora internet radio makes most of their money from advertising. All of their advertising revenue is from banner ads on their website and mobile interface. They do not have audio ads, although they are considering subtle, NPR like audio ads in between songs like 'The next half hour is brought to you by . . ." according to an August 2008 article in the Washington Post. I assume Pandora also makes some money on referrals from sales of digital tracks from iTunes and Amazon.com but I couldn't find any numbers one this. Like many internet start-ups, Pandora was supported by venture capitalist investors. Its revenue was supposed to exceed its cost for the first time in 2009. This was before the announcement of royalty fee hikes.

Last year Pandora almost had to close down after a federal panel ordered the doubling of the per song royalty fee it, and other internet radio stations were already paying. Royalty fees that Pandora has to pay to record companies accounted for about 70% of its projected revenue of $25 million in 2008. Traditional radio pays no fee and satellite radio pays a fee that is lower than internet radio providers. "The Copyright Royalty Board last year decided that the fee to play a music recording on Web radio should step up from 8/100 of a cent per song per listener in 2006 to 19/100 of a cent per song per listener in 2010. Multiplied by the millions of songs and thousands of listeners Pandora serves, that means the company will have to pay about $17 million this year, Westergren said," according to the Washington Post article.

Fortunately for Pandora, a new royalty resolution was met this year at a rate Pandora thinks it can continue to function with. According to a blog post on July 07, 2009 by Pandora's founder Tim Westergren, after nearly two years of lobbying a new rate was set with the help of groups from the artist and label side as well at the internet radio side. While this new rate was lower, Pandora still had to make some changes. They limited their free subscribers to 40 hours of listening each month. After 40 hours was reached they would be able to listen for the rest of the month for $.99. Pandora says these heavy listeners only account for about 10% of their subscribers.