Record Companies Open Pandora's Box

Pandora has been one of the best sources for new music on the net. The way the service works is that you enter in some parameters (band name, music type, etc.) and the website starts playing music it thinks you'll like. You then vote up or down songs which helps the service better predict your musical tastes. With a minimal investment of time and energy on your part, you'll find new music that you may never have encountered before. There is even an option to go directly to Amazon or iTunes to purchase the music.

Say goodbye to all that.

Pandora may be going the way of the dodo according to Ars Technica. It seems that the recent Internet radio royalty hike will be too crushing for the upstart website. Currently they have a stable of ways to make money (ads on the site, subscription services, etc.) but apparently it isn't enough. While they will take in a reported $25 million in 2008, 70% will go to pay for the royalties.

So, maybe they can make their bills this year but what about in 2010 when the rates DOUBLE?

The problem, as I see it, is that Pandora is really against the wall. Can they make more money? Sure. Don't give anything away. But their user base has become accustomed to the free service. How hard can they push before the fickle Internet crowd goes to greener (or less green out of their pockets) pastures? It is a delicate line.

Don't think this will be the only victim to the greed of the record companies. While places like NPR won't go out of business because of it, you can bet you're going to see a lot less content online. If you think this is a good thing, try listening to your local radio stations and compare them to the offerings online. One of these things is not like the other.

The fact is that many bands have sold albums because of Pandora that might not have otherwise. While my local station thinks Alice in Chains is still "fresh," online I can find more and more music to buy because of services like Pandora.

The "winners" here are NOT the record companies. It will take them a few years after they crush the last of the online radio stations before they figure out how much revenue they lost and then try to recreate Pandora - probably poorly. The winners are the pirates and the P2P filesharers. Those of us that don't want to "steal" music won't, but the many out there who want new music and prefer to get it legally but don't mind a little filesharing will go right back to those services. And now, they have a bad guy to blame. Talk about shooting yourself in the foot.

I'm not giving up on Pandora yet - perhaps they will find a way to stay alive. Or maybe Google will buy them and I'll end up with the service anyhow. This is just the first step on a very rocky road for online radio.