I’ve made no secret of the fact that I like Pandora.com. The internet radio service is one of my two favorite (iLike is the other) ways to discover new music. Pandora might be shutting down soon however.

With the increase in royalty rates dictated by the CRB recently, Pandora is facing a situation in which 70% of their revenue will be eaten up by song royalties. That doesn’t leave a lot for paying the bills, and staff, let alone expansion.

Founder Tim Westergren says Pandora’s funding comes from venture capitalists who won’t be inspired to continue supporting a business who’s revenue model is broken.

We’re losing money as it is. 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. We’re funded by venture capital. They’re not going to chase a company whose business model has been broken. So if it doesn’t feel like its headed towards a solution, we’re done.

Jon Simson, of SoundExchange, has said Pandora needs to adopt a new business model that includes audio ads placed between songs, if it is to survive as a viable business. Pandora, however, doesn’t seem to keen on that idea. Pandora’s thinkers feel that such a model would be a turn off for listeners and simply drive them away.

Pandora is hoping for relief from Washington lawmakers, who they are hoping will alter the royalty system as it currently stands. They feel the disparity in revenue percentages paid by internet radio (70-300% depending on which internet station you talk to), when compared with satellite radio (6%) or terrestrial radio (0%), is unfair and should be amended.

On the other hand, SoundExchange points out that satellite radio brings in a total revenue of $115 per listener per year, whereas internet radio stations average only $3.50 per listener per year. Their argument is that the percentage must be higher to generate a similar amount of royalties for a similar amount of listening. The thought process being, if the internet radio stations can’t figure out how to earn income, that’s no one’s fault but their own.

On the one hand, I understand the sentiment. If I were the creator of a product, which others sold, and one retailer sold it for a price I liked while another told me they needed a steep discount because they couldn’t sell it for much, I might choose not to sell to that retailer.

On the other hand, at a time when the industry is hemorrhaging due to slumping CD sales, some revenue is better than none. I don’t buy the argument that the industry needs time to develop, it’s had the time and just hasn’t developed a revenue model that will generate the kind of royalty rate SoundExchange would like to see. But they are generating a royalty. 25% of something, is more than 70% of nothing.

Pete Stover, general manager of Bluegrass FM, sent us a note about the launch of their second all bluegrass radio station in Virginia.

What makes this regional story of wider interest is the income stream they use to support the station’s programming. They operate as a private business on the FM spectrum, yet depend on the sort of corporate/business underwriting and listener support that has become familiar on public radio.

I’ll let Pete make his own points…

Bluegrass FM, based in Fredericksburg, VA has opened its second 100% bluegrass 24/7 radio station, WWEM 91.7 in Lynchburg, VA. The station is the second in a growing network of FM broadcast stations which operate commercial-free and are donor-supported through listener and business donations.The first station in the network, WWED 89.5 in Fredericksburg, went 100% bluegrass in June. An application is on file with the FCC to increase WWED’s transmitting power to 10,000 watts due to be granted in early 2009 when TV6 in Richmond relinquishes its analog channel. The increased power will allow WWED to extend its coverage into the Richmond and Charlottesville areas.

Based on early listener response in the first few days, WWEM’s coverage extends from Roanoke to south of Charlottesville and east to Farmville, a “hotbed” region for bluegrass. New listeners have largely stumbled across the station on 91.7 which transmits from Long Mountain in Rustburg, VA several miles SE of Lynchburg.

Business underwriting is available and acknowledgments of donations are broadcast over both stations which provide a huge footprint for bluegrass 24/7 across Virginia. Plans are to put other stations on the air in other localities in the Commonwealth.

For now, Bluegrass FM streams its audio on the web but will likely discontinue a “live” stream due to the “heavy hand” of SoundExchange but it will provide alternative forms of media that will compliment its bluegrass programming on the air.

Could this be the future of niche programming on the public airwaves?

With controversy and legal action still taking place over the rates set for internet radio, the Copyright Royalty Board has fixed new rates for satellite radio services. Since there are only two satellite providers in the US, Sirius and XM are the only companies affected by the ruling.

The two satellite radio services have been given an entirely different deal than that handed down for webcasters. While internet radio was burdened with a per song fee, satellite radio has been given a favorable percentage of revenue model to work from.

These fees are the ones paid to SoundExchange for performance royalties. They are paid in addition to publishing royalties owed to such organizations as ASCAP.

Here is the fee structure as set by the CRB: (more…)

We covered this issue in some detail in the past, with a good deal of discussion taking place in the comments (here and here). The issue seems to have slipped off the radar lately, but the debate continues in the background.

Just recently, the US Court of Appeal for the District of Columbia set dates for briefings related to appeals filed by webcasting groups unhappy with the rates set by the Copyright Royalty Board for internet radio royalties. Briefs are due February 25 (2008) for the webcasters, April 25 for the CRB, and May 15 for SoundExchange. Reply briefs will be due on June 12. The court has yet to schedule oral arguments in the case.

With a summer break for the court and the length of process involved in a case like this, it is likely we won’t a see a decision until late 2008 at the earliest.

There has been at least one settlement announced, concerning the case, at this time. The settlement limits the minimum fee for multiple channels (streams) to $50,000 per company. This is welcome relief for businesses such as Pandora that allow each individual listener to create their own channel, resulting in millions of channels for which they would have been charged under the initial CRB decision.

It is possible that other settlements could be reached outside of court, rendering theses appeals unnecessary. Barring that, it looks to be a year or more before this issue is settled. In the meantime, be sure to visit your favorite bluegrass internet radio station and enjoy the music.