Listening Room,, Pandora

The hype machine is all a-flutter about, which isn’t totally unreasonable because it’s a great app. But there are a couple reasons to calm down.

First, it is not the creator of the idea. is a clone of Listening Room. LR was too buggy to use when it was first released, and the folks took their copy from zero to better-than-the-original before the original could get up to snuff. Credit is due for being a really fast follower, but let’s not forget the original.

But the big reason for tamping down the euphoria is that the economics are no different than ever. Turntable is a webcaster, paying the same royalties as Pandora and other non-interactive streamers. This is a break-even business.

Back in the day when Pandora was number #3 behind AOL and Yahoo, what got it into first place was that AOL and Yahoo both exited the radio business. Just walked out the door and didn’t come back, like holders of underwater mortgages in one of those foreclosure ghost towns. These companies had no problem finding listeners, they had a problem justifying their investment.

A break-even business has to compete for investment capital with lower risk investments like savings accounts and bigger upside investments like Groupon. It is high risk like Groupon but has growth potential like a savings account.

But is in an even worse position than Pandora, in a way, because Pandora has a smaller catalog. users can call for any song at any time, which means pretty much every song at one time or another. Pandora only has about 800,000 songs in its catalog. That enables it to pursue direct licensing of some tracks. Direct licensing means that Pandora cuts a deal with a label to pay less per track in exchange for playing the track more often. This is one of the very few tricks Pandora has up its sleeve, and doesn’t have it.

Maybe has tricks up its sleeve. It could be that something new about creates a way to charge higher ad rates or pay lower royalties. Cross your fingers.

5 thoughts on “Listening Room,, Pandora

  1. Nice essay Lucas, and generally spot on. I think turntable could also, as a business, make money in other ways, whether those are track sales, mx sales, ways to organize music for more serious DJs, sponsorship of rooms, more avatars, etc. I have no idea what they are planning or if any of this could work, at all, but maybe there are different elements to turntable – it’s inherently social nature, for example – that make more here.

  2. Andy, I’m glad you brought up direct sales as opposed to ad sales. I agree that there could be something there. Maybe having the music site and seller vertically integrated could grow the profit margin enough to change the economics.

    Here’s an idea: a dating service. Call it “is my song hot or not.”

  3. Hey Lucas,

    I’m glad you’re back blogging about stuff like this.

    We’ve been using Turntable at work as a collective music playing jukebox, and it’s definitely something I find myself interacting with a lot, as opposed to Pandora.

    So explain to me, why aren’t they just selling ads like radio? Is there some reason why rates are bad? Can’t you do some pretty decent ad targeting based on user info you get from songs chosen (Wilco == Prius), or from the Facebook profiles of the users?

  4. Jim, the point you make about it being more interactive is interesting. In a passive radio app the user mainly keeps it out of view, so display ads never get seen. Display ads have great CPM.

    There are three reasons they’re not just selling ads like radio. One is that the highest rates in radio are for local radio and internet radio rarely has the reach in any given area for local businesses to be able to reach their customers. This keeps prices down. The second issue is that online radio pays 25-50% of revenues for royalties while terrestrial radio pays less than 5%. Third, online radio runs a lot less ads per hour, I think because the listener can switch away more easily.

    So terrestrial earns more for an ad and pays out much much less for music.

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