Ad Supported Social Music site Pandora is closing its doors on the UK due to license fee issues. Pandora claim that the per track minimum fees demanded by PPL (the UK label licensing body for radio) and MCPS/PRS (the mechanicals and performance body) are too high to be sustainable for their ad supported model.
As we said back at the start of 2007, the current first generation of ad supported services will need to have more competitive licenses if they are to have long term economic viability. The irony here is that Pandora is facing licensing issues just as the major labels are becoming more open to next-gen offerings like Pandora. However they appear to remain cautious enough to either demand large fees or do things in a half hearted manner (see SonyBMG’s bizarre implementation of DRM-free). So does this mean that if you are a next-gen service your chances of success depend on the depth of your pockets and your willingness to implement non-sustainable operating margins? If so that skews the rates of success to:
• VC funded companies with the mid-term goal of acquisition
• Big companies with ulterior business aims which can subsidize costs (device manufacturers, telcos etc.).
If so that would be a shame and would be replicating some of the key mistakes that were made in the early phases of the digital music market.
According to Greek mythology after Pandora had opened the jar all that was left inside was hope. Looks like the namesake service could do with a healthy dose of that.