Music remains one of the killer apps online – and increasingly in the mobile sphere as well. The challenge is making the economics work. Pandora, which runs one of the original recommendation-based streaming online “radio stations,” and whose mobile apps are some of the most popular around, shared some business details that show a significant top line – but also the challenges in making money given current royalty structures. Pandora head Tim Westergren disclosed Pandora had 2009 revenues of $50 million, representing by his contention about 44% of the “Internet radio market.”
But the cost side of the online music business makes it challenging, writes PaidContent.org:
Westergren disclosed top-line, 2009 revenues of $50 million, but royalty obligations to SoundExchange alone (a cost that does not include publishing) topped $28 million, according to Westergren. The bigger Pandora gets, the bigger its royalty bill, a variable cost structure that makes it difficult for many content-based business to scale.
Either way, Pandora is a serious chunk of total SoundExchange royalty revenues from online radio. Despite all of the wrangling over non-interactive royalties on recordings, Pandora now accounts for roughly 44-45 percent of total SoundExchange royalties for non-interactive streams, according to details confirmed by both companies.
Connected Planet’s take, Sarah Reedy:
I have a new habit now when there’s a particular song I want to hear on my iPhone – first I add the artist as a Pandora station and if, after six tries, I still don’t hear the song I want, I find it on YouTube and listen to it there, ignoring the video. I won’t tell you what artist/song I’m referring to (it’s too embarrassing), but I know I’m not alone in both my love of music and my reluctance to pay for it. There is a seemingly a mobile music out there for everyone, whether they choose to access the music, subscribe to it, own it, view it or just sample it. But, the question of if these apps can make money still up in the air. Pandora has begun using mobile ads to subsidize its challenged business model – a path that other apps are likely to follow.
Making money on mobile music hasn’t been easy for wireless operators either. Most have a strategy in place: T-Mobile pre-loads iTunes alternative DoubleTwist in some of its handsets. Verizon offers a la carte downloads of full-track music, although does not have an unlimited option, such as those offered by handset makers Sony Ericsson and Nokia. AT&T has a relationship in place with both Napster and mSpot for mobile music. But outside of ringtones in the past, music hasn’t been a big revenue generator for any of them yet.
It remains to be seen who will ultimately own mobile music — innovative apps or carriers who already own the billing relationship and a higher degree of integration with the mobile phone. But, before we even get to that point, it also remains to be seen if a real business can even be made from mobile music — ad-driven or otherwise — when so many free options prevail.
That’s our take on this, let us know what you think in the comments below: