Giant of Internet Radio Nears Its 'Last Stand'

(swiped from The Washington Post)

Pandora, Other Webcasters Struggle Under High Song Fees

OAKLAND, Calif. -- 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."

The transformation of words, songs and movies to digital media has provoked a number of high-stakes fights between the owners of copyrighted works and the companies that can now easily distribute those works via the Internet. The doomsday rhetoric these days around the fledgling medium of Web radio springs from just such tensions.

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.

As for Pandora, its royalty fees this year will amount to 70 percent of its projected revenue of $25 million, Westergren said, a level that could doom it and other Web radio outfits.

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."

"We're losing money as it is," said Westergren, a former acoustic rocker. "The moment we think this problem in Washington is not going to get solved, we have to pull the plug because all we're doing is wasting money."

The digital reproduction of works in print, audio and video has provoked waves of lawsuits over who should benefit from copyrighted works distributed over the internet. The media company Viacom sued YouTube for running clips. Record companies have sought to punish file-sharers. And in radio, the digital transformation has recharged long-standing disputes over how much performers and their record companies ought to be paid when a song gets played.

By contrast to traditional radio, which broadcast only one song at any given time, Pandora's technology allows listeners to create their own stations, through which hundreds of thousands of song are played simultaneously.

For example, if a Pandora listener expresses a preference for "Debaser" by the Pixies, Pandora will search its catalog for songs that have similar musical qualities and create a station accordingly.

Soon after its launch, Pandora drew raves and listeners. Revenue at the growing company, which is supported by venture capital investors, was slated to rise above costs for the first time in 2009, Westergren said.

Then came the decision by the Copyright Royalty Board.

"I was on the bus when I get this message on my Treo," Westergren said. "I thought, 'We're dead.' "

SoundExchange, the organization that represents performers and record companies, said it supports the higher royalties for Internet radio because musicians deserve a bigger cut of Internet radio profits.

"Our artists and copyright owners deserve to be fairly compensated for the blood and sweat that forms the core product of these businesses," said Mike Huppe, general counsel for SoundExchange.

The Copyright Royalty Board last year decided that the fee to play a music recording on Web radio should step up from 8/100 of a cent per song per listener in 2006 to 19/100 of a cent per song per listener in 2010.

Multiplied by the millions of songs and thousands of listeners Pandora serves, that means the company will have to pay about $17 million this year, Westergren said.

The effect may be even worse for smaller outfits. Many small webcasters have said that the royalties as determined by the copyright board would be 100 percent to 300 percent of annual revenue, said David Oxenford, a lawyer who represents some of them.

"Obviously, that's not going to work," he said.

Even more galling to webcasters is the fact that they pay more for playing a song than traditional or satellite radio, a result of patchwork regulation created as each technology emerged.

Traditional radio pays nothing in performance royalties, though SoundExchange is pressing to change that. Satellite radio pays 6 or 7 percent of revenue. And then there are webcasters, which pay per song, per listener.

Using listener figures from Arbitron for XM Satellite Radio, it is possible to estimate that the company will pay about 1.6 cents per hour per listener when the new rates are fully adapted in 2010. By contrast, Web radio outlets will pay 2.91 cents per hour per listener.

SoundExchange officials argue that because different media have different profit margins, it is appropriate to set different royalty rates.

Moreover, they complain, Internet radio stations have done too little to make money from playing their songs.

Pandora makes advertising money only from spots placed on its Web page, not on audio ads that run between songs. Other stations are similarly struggling to persuade companies to pay for advertising in the new medium.

"We're taking this challenge very seriously," Westergren said. "When we have our board meetings, the central topic is the revenue trajectory, not how happy our users are."

He said Pandora has a 30-person ad sales operation, or about 25 percent of its workforce. The company will soon start running subtler ads similar to those on National Public Radio, too, he said.

"Something like 'The next half hour is brought to you by . . .' " he said.

Westergren and other webcasters argue that Web radio, which generally plays a far wider range of music than is offered by traditional radio, provides invaluable promotion for many independent musicians.

Matt Nathanson, a singer-songwriter who has recorded for both major and independent record labels, said he is worried that the demands placed on Internet radio could "choke" the industry before it gets its footing.

"Net radio is good for musicians like me, and I think most musicians are like me," he said. "The promotion it provides is far more important than the revenue."

Westergren, seemingly wearied by the constant haggling over the issue, signaled that Pandora's investors may also be impatient for an end.

"We're funded by venture capital," he said. "They're not going to chase a company whose business model has been broken. So if it doesn't feel like its headed towards a solution, we're done."

iPhone 3G Launch Plagued By Long Waits, Phone Shortages And Activation Problems

The new phone may be cheaper and streamlined, but getting one has proved quite a hassle for many.

(Swiped from MTVNews)

You'd think after the initial headaches and gripes about eBay-gouging when Apple's fanboy-dubbed "Jesus Phone" debuted last year, people would be a bit more chill this time around. But across the country, in the hours before the first 3G iPhones went on sale Friday (July 11), there were lines around the block and, according to most reports, not nearly enough phones to go around.

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In Silicon Valley, the San Jose Mercury News reported that some die-hards began lining up as early as 6 p.m. on Thursday, and as the 8 a.m. launch time approached, there were whoops of joy among the 100 or so fanatics at one Apple store. In Tokyo, the lines began forming even earlier and snaked around entire city blocks, and in Manhattan's flagship Apple store, hundreds were lined up, many of whom were already owners of the first generation of the phone but were eager to trade up.

(One MTV News producer braved the iPhone lines and lived to tell his tale in the Newsroom blog.)

The newest version of the phone is cheaper ($199- $299) than the original iPhone and runs on a faster network (but the mandatory two-year contract is more expensive), plus it has a built-in GPS system and the ability to download cheap or free applications from the new Apps Store. Among them: an iPhone version of Pandora that helps you to create on-the-go radio stations or tap in to your old ones; myMetronome, in case you need a metronome on the road; a weekly RingtoneFeeder; a dedicated feed of Weezer information; Midomi, which helps you identify songs playing on the radio by holding the phone up to a speaker or singing a few bars; Tour Volume, which searches for concerts in your area; the LaLaLa Lyrics Search engine; a guitar tuner called Guitar Toolkit; a plug-in that turns your phone into a wireless remote for iTunes and Apple TV; and Kompoz, a social-networking app that allows musicians around the world to collaborate on new tunes.

(For a look at some more iPhone extras, check out our Multiplayer blog's take on new games for the cell.)

While a spokesperson for Apple would not return calls for comment, Gene Muster, a technology analyst for investment firm Piper Jaffray, estimated that Apple will sell nearly 13 million iPhones this year and 45 million next year.

But for a company whose trademark is slick design and ease of use, the launch of the new iPhone in 21 countries was a bumpy ride. Shortly after the first phones were unwrapped, users began complaining that there were widespread problems activating them in the Apple and AT&T stores. Unlike the original iPhone launch, the plan for the 3G phone was to activate the device in the store in order to get customers to sign a contract with AT&T, which is helping to subsidize the cheaper price of the new phone.

CNET reported that while the long lines that plagued the original iPhone launch didn't recur for the most part, this time around it was the interminable wait to get the phones activated that was the frustrating factor for many users, some of whom waited 45 minutes or more to get their phones turned on, only to face overloaded servers and network outages. Later in the day, Apple decided to ditch the in-store activation and let users hook up the phones at home in order to ease store crowding.

The software glitch even snared owners of the previous iPhone model, according to The Associated Press, requiring them to reactivate their phones through iTunes on Friday.

Even though anyone who wanted an iPhone last time around could easily purchase one if they waited until the initial frenzy was over, that didn't stop some people from believing the hype all over again this time around. According to one CNET blog, a woman waiting outside the Salt Lake City Apple store bought a place in line for $200, while some New Yorkers were able to stroll up just half an hour before the doors opened to secure a good spot in the line.

Apple did not release figures on how many iPhones were distributed to each store, but an employee at one AT&T store in New York said they'd received around 100, which very quickly sold out, and that she understood most of the other stores in Manhattan had received a similar amount. Of the four out of eight stores who answered their phones when MTV News called on Friday afternoon, all said they were sold out but were expecting another shipment as early as Friday afternoon or Saturday morning.

But according to CNET, that didn't stop some iPhone-ophiles from freaking out on Friday and getting into a brawl at one AT&T store when a group of people tried to jump the line during what some in the Twitter-verse dubbed the "iPocalypse."

Faster, cheaper iPhone to draw crowds around globe

(swiped from Reuters)

NEW YORK (Reuters) - The new iPhone is expected to attract hordes of buyers when it goes on sale on Friday in more than 20 countries, helping Apple Inc (AAPL.O: Quote, Profile, Research, Stock Buzz) handily beat its target to sell 10 million of them by the end of 2008.

The much-anticipated smartphone has faster Web links than the first iPhone, supports third-party software like games, and is being heavily subsidized by many phone carriers, with some even giving it away to attract new subscribers.

Atlantic Equities analyst James Cordwell said Apple may sell more than a million new iPhones in the first weekend, partly because it is selling in so many more countries than the first one, which was only available in six.

Some 270,000 people bought the first iPhone in the few days after its launch in late June 2007, after many U.S. customers had lined up for days outside its stores. AT&T (T.N: Quote, Profile, Research, Stock Buzz), the sole U.S. carrier, will shoulder much of the cost for the latest phone to halve the price.

"They're going to bring users in droves to this product," Deutsche Bank analyst Chris Whitmore said. He sees Apple burying its own 10 million sales target by selling about 10.5 million of the new high-speed iPhones this year, having already sold more than 6 million of the first one to date.

Whitmore said price and distribution were two key reasons why the new device, which plays music and supports corporate e-mails, would outsell its predecessor.

NEW MARKETS

While some analysts expect the new phone to sell best in the United States and Western Europe, consumer excitement in new markets such as Hong Kong, Japan and New Zealand appeared to foretell strong demand in other markets too.

"The key is less likely to be demand and more likely to be supply," said Atlantic Equities' Cordwell.

In Hong Kong, Hutchison Telecommunications (2332.HK: Quote, Profile, Research, Stock Buzz) was flooded with 60,000 online applications over the weekend from consumers hoping to buy the 500 phones on sale there.

In New Zealand, which will be the first country to sell the phone due to its time zone, people started lining up outside a Vodafone (VOD.L: Quote, Profile, Research, Stock Buzz) store on Tuesday, according to a local paper.

02, the UK arm of Telefonica (TEF.MC: Quote, Profile, Research, Stock Buzz), said its website was overwhelmed with early orders on Monday after being hit with 13,000 orders per second during the peak, according to a spokesman who said it had sold out in a few hours.

The carrier, which is giving the phone away to customers who commit to specific data service packages, said it has stock left to sell in stores Friday and expects more deliveries.

Carphone Warehouse Plc (CPW.L: Quote, Profile, Research, Stock Buzz), a UK phone retailer, said interest for the latest iPhone is 10 times higher than for the first device. Neither company gave specific sales figures.

T-Mobile, owned by Deutsche Telekom (DTEGn.DE: Quote, Profile, Research, Stock Buzz), said it has received orders for several thousand iPhones in Germany alone, where the cheapest iPhone will sell for 1 euro. It also plans to offer it in the Netherlands and Austria starting on Friday.

PENT UP DEMAND

Investors will be particularly interested in demand in Japan, where consumers have a strong penchant for advanced mobile devices. Some see the plan by Japan's number-three mobile service provider, Softbank (9984.T: Quote, Profile, Research, Stock Buzz), to sell the iPhone as a big threat to market leader NTT DoCoMo (9437.T: Quote, Profile, Research, Stock Buzz) as Apple fans were already lining up in Tokyo two days before launch.

But many analysts are skeptical the device will be popular among mainstream customers as it does not support television services or electronic payment features widely used in Japan.
However, Mitsubishi UFJ Securities analyst Shinji Moriyuki said Softbank stores were getting 50 to 100 inquiries a day per store about iPhones, compared with up to 30 a day before the launch of DoCoMo's popular 906i device series.

Research firm Enterbrain said 6.7 percent of 1,200 people it surveyed in Japan wanted to buy an iPhone immediately, while 35.7 percent were interested but undecided.

Even in mainland China, where Apple has announced no carrier deals or official plans to sell the phone, retailers were gearing up to sell gray-market iPhones.

Many carriers are making buyers of subsidized iPhones commit to contracts they cannot break without a penalty, to discourage them from unlocking the phone to work on other networks.
But a merchant on the third floor of the Cybermart mall on Shanghai's posh Huaihai Road said hacking would still happen.

"As soon as we get it from Hong Kong and bring it over and unlock it, you should be able to buy it here by the end of July at the latest," said the vendor, whose surname was Zhang. "The Chinese are very quick at unlocking iPhones."

Apple still gets paid for hacked phones. Whitmore estimated iPhone gross profit margins at more than 50 percent, versus his estimate for iPod margins in the low 30 percent range.

"To the extent it cannibalizes iPod, it's better economically for Apple," he said.

(Additional reporting by Sophie Taylor in Shanghai, Sachi Izumi in Tokyo, Nicola Leske in Frankfurt, Edwin Chan and Vinicy Chan in Hong Kong, Georgina Prodhan and Kate Holton in London; Editing by Braden Reddall)