Giant of internet radio on brink of defeat, says founder

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

While satellite radio stations do not pay copyright royalties and traditional ones pay none at all in the US, internet radio stations have traditionally paid 0.08 cents per song played. Last year it was decided that that would rise in increments to 0.19 cents per song by 2010.

The decision was made by the Copyright Royalty Board (CRB), which reports to the US Library of Congress. Though a partial compromise deal was reached between the industry and the CRB last year, negotiations on rates and conditions are ongoing.

A year ago Pandora switched off its service to all countries apart from the US and the UK, still hopeful that it could negotiate deals with rights holders there. Then in January of this year Pandora was switched off in the UK.

"We worked diligently with the rights organizations to negotiate an economically workable license fee," Westergren told users in January. "After over a year of trying, this has proved impossible. Both the PPL (which represents the record labels) and the MCPS/PRS Alliance (which represents music publishers) have demanded per track performance minima rates which are far too high to allow ad supported radio to operate and so, hugely disappointing and depressing to us as it is, we have to block the last territory outside of the US."

Westergren has now told The Washington Post that his business is close to closing down altogether. He said that the royalty payments would represent 70% of his firm's entire turnover and that he could not run a business with those costs.

"We're losing money as it is," he said. "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," he said. "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."

Pandora is a particularly innovative online radio station because it takes your stated musical preferences and attempts to find other music that is similar to that. As the basis for those suggestions it uses a database it calls the Music Genome Project.

"Our team of 50 musician-analysts has been listening to music, one song at a time, studying and collecting literally hundreds of musical details on every song," said Pandora's explanation of that project. "It takes 20-30 minutes per song to capture all of the little details that give each recording its magical sound – melody, harmony, instrumentation, rhythm, vocals, lyrics and more – close to 400 attributes."

Supporters of web radio point out that the fact that it is customisable and tends to play a wider range of music than mainstream radio makes it a valuable promotional tool for emerging artists who otherwise struggle to reach listeners.