Royalties May Force Pandora to Close

If there's anything the recording industry loves more than suing people, it's raising royalty fees (as evidenced by the recent spat between Activision and Warner Music over Guitar Hero royalties). The Copyright Royalty Board's decision to more than double the per-song, per-listener royalty that internet radio stations must pay last year may cause yet another casualty - the popular Pandora service, which allows users to tailor personalized stations using "thumbs up" and "thumbs down" ratings.

Pandora's royalty fees this year will amount to 70% of its projected revenue of $25 million. Smaller internet radio stations have seen royalty fees equal or even surpass their revenue. By contrast, satellite radio pays about 7% of revenue, and terrestrial radio currently pays nothing (though the industry is trying to change that). Pandora's founder, Tim Westergren, says that if a new deal can't be worked out soon, Pandora will have to close. Nothing says good business practices like charging your customers out of the market.