Pandora Dissolution - Reality or Negotiating Ploy?

FriendFeed user Marco shared a Washington Post article about Pandora. I'd like to focus in on one part of the article:

Pandora is one of the nation's most popular Web radio services, with about 1 million listeners daily. Its Music Genome Project allows customers to create stations tailored to their own tastes. It is one of the 10 most popular applications for Apple's iPhone and attracts 40,000 new customers a day.

Yet the burgeoning company may be on the verge of collapse, according to its founder, and so may be others like it.

"We're approaching a pull-the-plug kind of decision," said Tim Westergren, who founded Pandora. "This is like a last stand for webcasting."

What is prompting this?

Last year, an obscure federal panel ordered a doubling of the per-song performance royalty that Web radio stations pay to performers and record companies.

Traditional radio, by contrast, pays no such fee. Satellite radio pays a fee but at a less onerous rate, at least by some measures.

What's being done about it?

This week, Rep. Howard L. Berman (D-Calif.) is trying to broker a last-minute deal between webcasters and SoundExchange, the organization that represents artists and record companies. The negotiations could reduce the per-song rate set by the federal panel last year.

The two sides appear to be far apart, however, with Berman frustrated.

"Most of the rate issues have not been resolved," Berman said. "If it doesn't get much more dramatic quickly, I will extricate myself from the process."

Steven Hodson (who was already cranky because Pandora was geotarded out of the Canadian market) had his own thoughts on the matter.

The fact is that these agencies much like SoundExchange couldn’t care less about the artists or that the money they are suppose to be collecting for said artists never actually reaches them in most cases.

In FriendFeed itself (back on Marco's share), discussion ensued, primarily regarding the question of whether Sound Exchange is greedy, stupid, or both.

In a pseudonymic way, I opined:

Not sure if Pandora is posturing.

Tanath answered:

[Pandora has] been saying this is a big problem for some time now. I really don't think it's posturing.

Steven Hodson, in his post, thinks the threat is legitimate:

[U]nless there are some late ditch efforts on behalf of webcasters like Pandora and even smaller providers they will find themselves being driven out of business.

Yet there's another option to shutting the doors - the option taken by one of Pandora's competitors, last.fm - sell out. Here's part of what last.fm wrote in May 2007:

The team here have spent a lot of time this year discussing what the future should hold for Last.fm, and while contemplating raising some additional venture capital we were approached by CBS. As you can imagine, we have been approached numerous times in the past few years from all the usual suspects regarding acquisitions and so on; CBS are one of the few companies who needed no explanation of what we are doing, and we were impressed at how progressive their plans are. This deal with CBS gives us a chance to really make Last.fm shine, and gives us more flexibility than other funding options would for doing all the crazy stuff we’ve had scribbled on whiteboards for years.

Now obviously CBS isn't going to buy Pandora, but who would? One possibility is the organization that pulled its music from last.fm - Warner Music Group. If you missed the news or were on vacation like I was at the time, this ran on June 6:

Warner Music Group has pulled its entire catalog from Last.fm, a company spokeswoman confirmed Friday.

Warner Music would not comment on the reason for leaving Last.fm, but the label's departure is certainly a setback for the social-networking site. Warner was the first of the major labels to do a deal with Last.fm.

So, one possibility is that Warner could acquire Pandora and use it to set up its own silo of Warner-only music, thereby drawing people from last.fm.

It's an incredibly stupid move, which is why it seems likely that the music industry will do something like this.