Click the image to the left for an interview with Tim Westergren about his experience prior to and as founder of Pandora. The path to that founding is colorful and unlike other startup stories. Launching a business that threatens the status quo is a classic tale, retold often.Travis Kalanick tells his own variation on a founder’s story about an industry’s reaction to disruptive technology; it is worth listening to both interviews back to back.
Michael Philips has a very insightful blog post covering Pandora’s recent moves in a brutal chess game–incumbents are under no obligation to sit back and watch an upstart deliver creative destruction on a silver platter, but the defensive moves to protect entrenched interests from the power of innovation obviously do not always serve the best interests of society. Philips gives attention to Kalanick’s Uber travails at the same time:
This week, the Internet-radio service Pandora planted itself in South Dakotan soil. It bought an FM radio station in Rapid City. The station, KXMZ-FM (Hits 102.7, “Today’s hits without the rap”), serves the two hundred and fifty-fifth largest radio market in America. Its Facebook page highlights a local Good Samaritan who bought new tires for a stranger’s beat-up pickup truck. But Pandora’s purchase is not a bid for heartland radio; it is the company’s latest gambit in the war between artists, publishers, broadcasters, and technology companies over who will profit from popular music.
Founded in 2000, Pandora employs the Music Genome Project, which breaks songs into nearly four hundred identifiable musical components that can be algorithmically analyzed to help users find songs they will like. This technology powers the “personalized” radio stations that Pandora streams, and might be, as the company claims, “the most sophisticated taxonomy of musical information ever collected.” But the company has always been better at getting users—it has two hundred million of them—than making money. And its biggest problem is that it routinely spends fifty to sixty per cent of its revenue acquiring music.
Consider Pandora’s struggle over the music-royalty fees that it pays to the American Society of Composers, Authors, and Publishers. ASCAP has treated Pandora skeptically, signing it to an “experimental” license arrangement that expired at the end of 2010. Since then, Pandora has been unable to come to a permanent agreement with ASCAP. It insteads pays the organization interim license fees that could increase retroactively through negotiations or by court order.
Like the music copyright owners, terrestrial radio stations have organized themselves into an association with superior bargaining power, called the Radio Music License Committee.ASCAP and the R.M.L.C. reached an agreement on royalty fees that will not expire until 2016—and the rates are much better. R.M.L.C. members pay only around 1.7 per cent of their annual revenue, whether they’re playing songs over Marconi’s airwaves or the Internet. Clear Channel, the owner of America’s largest network of radio stations, also owns iHeartRadio, an Internet-radio service that competes with Pandora but pays ASCAP the lower rates.
ASCAP has also adopted a new rule that permits its members to selectively remove their entire catalogs from certain “New Media Transmissions”—meaning Pandora. E.M.I. Music Publishing recently exercised this right; it forced Pandora to strike a deal directly—at even less favorable rates—lest it have a Kanye West-sized hole in its library. And Sony/A.T.V., which holds Michael Jackson’s catalog, and now owns E.M.I., has flirted with withdrawing its music from Pandora, as well.
The Pandora-ASCAP conflict is familiar: industry incumbents use their superior bargaining power and regulatory pull to thwart upstarts. Taxi companies have dragged Uber and its car-hailing smart-phone app before courtrooms and regulatory bodies in New York, Washington, D.C., and Chicago. Airbnb, the startup that arranges for short-term rentals of bedrooms and apartments, has faced similar opposition from regulators, landowners, and hotels…
Read the rest of the blog post here.
Organikos 