Giant of Internet Radio Nears Its 'Last Stand'

"We're approaching a pull-the-plug kind of decision," says Tim Westergren, founder of Pandora, which builds virtual radio stations for online users. (By Thor Swift For The Washington Post)
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By Peter Whoriskey
Washington Post Staff Writer
Saturday, August 16, 2008

OAKLAND, Calif. -- Pandora is one of the nation's most popular Web radio services, with about 1 million listeners daily. Its Music Genome Project allows customers to create stations tailored to their own tastes. It is one of the 10 most popular applications for Apple's iPhone and attracts 40,000 new customers a day.

Yet the burgeoning company may be on the verge of collapse, according to its founder, and so may be others like it.

"We're approaching a pull-the-plug kind of decision," said Tim Westergren, who founded Pandora. "This is like a last stand for webcasting."

The transformation of words, songs and movies to digital media has provoked a number of high-stakes fights between the owners of copyrighted works and the companies that can now easily distribute those works via the Internet. The doomsday rhetoric these days around the fledgling medium of Web radio springs from just such tensions.

Last year, an obscure federal panel ordered a doubling of the per-song performance royalty that Web radio stations pay to performers and record companies.

Traditional radio, by contrast, pays no such fee. Satellite radio pays a fee but at a less onerous rate, at least by some measures.

As for Pandora, its royalty fees this year will amount to 70 percent of its projected revenue of $25 million, Westergren said, a level that could doom it and other Web radio outfits.

This week, Rep. Howard L. Berman (D-Calif.) is trying to broker a last-minute deal between webcasters and SoundExchange, the organization that represents artists and record companies. The negotiations could reduce the per-song rate set by the federal panel last year.

The two sides appear to be far apart, however, with Berman frustrated.

"Most of the rate issues have not been resolved," Berman said. "If it doesn't get much more dramatic quickly, I will extricate myself from the process."

"We're losing money as it is," said Westergren, a former acoustic rocker. "The moment we think this problem in Washington is not going to get solved, we have to pull the plug because all we're doing is wasting money."

The digital reproduction of works in print, audio and video has provoked waves of lawsuits over who should benefit from copyrighted works distributed over the Internet.


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