Pandora Preparing To Pull The Plug?

In a Washington Post article last week Pandora founder Tim Westergren dropped a bombshell: his company is nearing the point where it will be forced to close it's virtual doors. Dire TW quotes include, "We're approaching a pull-the-plug kind of decision," and "This is like a last stand for webcasting."

The success of Pandora's iPhone application, which has attracted tens of thousands of new Pandora users per day, may be the company's downfall -- the more listeners webcasters like BAGeL Radio and Pandora attract, the more it costs in bandwidth and royalty payments, but that does not yet translate into increased revenues, leaving webcasters in a pickle. Today's laws, rates, and marketplace conspire to require webcasters stay small in order to survive. Another option for webcasters is to cut equity deals with the major labels, who then get a say in what's on playlists while effectively cutting out the artists from receiving royalties from digital airplay. Gee, I wonder what internet radio will sound like (cough, Clear, cough, Channel) when that happens!

Over at his muSick in the Head blog, Jason Herskowitz has published a simple and spot-on description of what's going on in the latest battle of the ongoing war waged by The Music Establishment against Any New Technology Whatsoever:

Act 1
* labels give terrestrial radio the rights to broadcast royalty-free (to generate awareness and sales of physical product)

Act 2
* labels want more promotion so they start *paying* to get the content played (payola)

Act 3
* labels told that "pay for play" is illegal and start looking for additional (free to them) promotional outlets

Act 4
* labels want more promotion so they give MTV rights to royalty-free broadcast of music videos

Act 5
* labels see other parts of the music ecosystem starting to make money (or *not* make money, but attracting users) and think "hey, that should be ours too"

Act 6
* labels start demanding/increasing payment on plays (where they used to gladly pay for such a thing and would still be doing so if the federal government deemed it illegal)

Act 7
* streaming/radio ecosystem can't afford to be in the radio business and all exit - or move to royalty free programming (talk, news, etc.) - this is in addition to MTV/VH1's continued shift to reality TV and away from music

Act 8
* labels don't have any promotional outlets to get their content heard

Act 9
* labels continue to explore new media distribution outlets for their content (commercials, soundtracks, etc)

Act 10
* due to limited inventory and increased competition to get song "placement" labels offer royalty-free content

Act 11
* go to Act 1

As if that was not great enough, he tops it off with the classic Albert Einstein quote, "The definition of insanity is doing the same thing over and over again and expecting different results.”

Read more of Jason's writing here.