More On Pandora: Doing The Math On Quitting UK

Maintaining a UK operation would impose crippling royalty fees on personalised web radio service Pandora, company founder Tim Westergren told paidContent:UK. After suspending its service everywhere outside of the US in July, Pandora on Monday decided to block British users for good, blaming excessive fees.

For background, the online license from the MCPS-PRS alone – which collects royalties on music and lyrics for songwriters, publishers and composers – asks interactive webcasters to pay either 6.5 percent of company revenue, or, if it’s greater, a minimum total of microfees (£0.085 0.085 pence per song streamed, £0.22 per premium customer per month).

With 2007 global revenues of $14 million (£7 million), Pandora would seemingly have been asked to pay a 6.5 percent charge of around £455,000 to MCPS-PRS (Ed note: MCPS-PRS emailed to say the calculation would be based on UK, not global, revenues). But, because the millions of songs it serves to users simultaneously rack up royalty microfees totalling in excess of that, it’s forced to pay significantly more.

Pandora doesn’t have concrete figures for its UK userbase, at best guesstimating “in the low hundreds of thousands”. So, for a back-of-the-envelope calculation… if 200,000 users played 30 songs a month (just one a day), at MCPS-PRS’ cost of £0.085 0.085 pence each, Pandora would appear to owe £510,000 £5,100 per month, or £61,200 a year.

Westergren (pictured): “The minimum is just way, way too high. That’s what’s deceptive about it. The percentage-of-revenue (requirement) is not what we have a problem with, it’s the minimum (streams fees) … There’s been a fair bit of projection done around what kind monetisation capability online radio is going to have in the long-run, when it’s fully mature – and these numbers just don’t work, even for a fully mature business.”

“Part of what’s so frustrating about this is that we’re clearly making the ad model work – we just need reasonable license fees.” The founder conceded fees for music are not in his keep but: “These rates will cause services like Pandora’s to stop streaming, and I think that’s a very bad development for artists and for labels. The way you (should) figure out the right numbers is to look at what’s fair but also allow companies like Pandora to build a business.”

Pandora is not the only one with a beef over the royalties structure. AOL (NYSE: TWX), Yahoo (NSDQ: YHOO) and RealNetworks (NSDQ: RNWK) challenged MCPS-PRS’ online license in a copyright tribunal in 2006, after the British Phonographic Industry, mobile operators and other web services agreed the fees a year earlier. But the tribunal’s verdict last summer gave endorsement to MCPS-PRS’ move, which introduced the minimum-fees model Westegren will now have such a hard time challenging.

“I still think the UK might be the first territory to come to an agreement and I hope that would serve as something as a precedent for other countries,” he said. “But it’s certainly been very, very discouraging.”

Pandora had never formally launched in the UK but had originally left it’s US website open to allcomers, so consider this an aborted attempt. The MCPS-PRS and PPL did not respond to requests for comment on this.

Update: Rates critics are petitioning the Prime Minister to intervene on the issue.