What’s New In Pandora’s Box

Pandora the free online- radio service that generates playlists based on users’ musical preferences reported that it believes it will be profitable next year for the first time since the company started in 2000 (check out our earlier review of Pandora if your not familiar with this site).

If this turns out to be true than Pandora will could be the first pure Internet music site to make some dough. Certainly iTunes is profitable – but that business has succeeded because of the iPod and iTouch as much as the Internet. But let’s focus on Pandora and the potential for a trifecta:

1. Pure Internet music site – not associated with a music studio or other offline music business
2. Profitable
3. 100% compliance with all music copyright rules and regulations

So how is this miracle occurring?

Pandora is an ad supported service and the registered user count has risen to 27 million registered users with an additional 50,000 to 60,000 members signing up each day! The mobile world has been very very good to Pandora! Their mobile applications have been home runs. Signups have been climbing since they released an iPhone app 10 months ago and one for the BlackBerry last month. The iPhone application has more than 5 million users and brings in 18,000 to 20,000 new ones daily!

Although the advertising market is very tight – even Google has seen an downturn – Pandora can deliver targeted ads thus making sure commercials aren’t wasted on the wrong demographic group. “We’re not delivering an ad for a women’s clothing store to men, or a bar or alcohol-related event to minors,” CEO Tim Westergren said. “Everything is delivered based on the information of the listener.”

Will more folks pay for higher quality?

Pandora has just rolled out Pandora One, a subscription-based upgrad which is a service upgrade from the standard free Pandora experience. The big question – will hardcore users shell out $36/year for some extra features? Compared to other subscription services, Pandora has identified some cool upgrades:

• High quality streaming – 192K bits per second audio. That’s the highest quality streaming experience on the Internet. More bits mean better sounding music.

• Extended interaction timeout – Listen for up to 5 hours in a row without Pandora stopping and asking “Are you still listening?”

• Pandora desktop application – You can play your Pandora stations right from your desktop – without opening a new browser window. Available for the Mac & Windows.
• Ad free experience

Pandora has had a subscription service for awhile at he same price, but it included very few incentives, other than an ad-free experience, that were worth paying for.

Smooth sailing?
Pandora’s primary barrier to reaching profitability rests in the outcome of a dispute over how much Internet radio providers should pay in music royalties. Pandora has paid all royalties – never ripping off any musician or studio. Pandora is in negotiations with recording companies, artists and copyright holders and those results could be considered the final hurdle for Pandora.

If they reach agreement with the music industry on affordable rates – they roll to victory. Without agreement – they may well join Napster, Seeqpod and the whole universe of Internet music sites that are now hosted on the Internet in the sky.

What’s the hope?

Pandora has played by all the music industry rules – no theft of digital assets here. If the recording industry is smart they will reach and agreement with Pandora and set the stage for digital music in the next century. But, the recording industry can be stubburn – let’s hope they wise up!

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