Online music streaming site Pandora is going live with advertising on its mobile platform today.
With over 1 million application downloads on the iPhone, Pandora is the third most popular application in Apple's App Store. The partnership with Best Buy and Beck’s will stream overlay ads on their mobile site in two consecutive partnerships for 30 days each.
The site is in a kind of purgatory until the U.S. Copyright Royalty Board lowers its royalty rates — or puts a few companies out of business. But the move is another of Pandora's attempts to bring in revenue while awaiting a decision on royalty rates.
In the interest of tailoring the ads to the service, users can click on advertising to purchase products or explore the brand’s website without stopping their music stream. The non-intrusive advertising is in keeping with Pandora’s general ad philosophy, according to Cheryl Lucanegro, Pandora’s vice president of National Sales:
Pandora is an ad-sponsored site that is running into monetization problems. The company has resisted running ads in the music stream, preferring to offer display ads on the user interface. Because many users prefer to listen with the Pandora site in the background of their computer screens, the ads only change when the user brings the site to the front and interacts with the interface.
The mobile site will have a similar problem, as users most often ignore the interface until they want to change the song or look up information on what they are listening to.
It remains to be seen how effective the ads will be, but Pandora is desperate for earnings after the United States Copyright Royalty Board raised royalty rates for webcasts last year from 8/100 of a cent per song per listener to 19/100 of cent.
Effective from 2006 to 2010, Pandora predicts that the rates will cost the site 70 percent of its projected revenue of $25 million this year. This is in contrast with the 6 or 7 percent of revenue that satellite radio plays.
Founder Tim Westergren says that the high rates could be a way to get webcasting out of competition with the labels and called the situation “a last stand for webcasting." But Richard Ades, spokesperson for SoundExchange, a music industry organization that suggested the new rates, told Popular Mechanics last week that Pandora's flawed business model is the problem:
Today's announcement is evidence that the company is looking for ways to monetize its popularity, but the ads are a stop gap until the royalties issue can be resolved. As Westergren told the Washington Post:
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