Today's Wall Street Journal highlighted a tricky area for businesses. The music-streaming company Pandora is struggling to stay in the black in light of increasing royalty fees due to licensing the music it streams.
Companies young and old can get in this bind: you need business to be in business, so you negotiate terms. Unforeseen and unforeseeable things happen, and the terms stop being tolerable. What's a company to do? Without paying the license fees, Pandora has no material with which to attract users to its site, and advertisers will pay less to access that audience.
If you business model is attracting advertizing dollars rather than selling a product, an increase in the cost of attracting an audience is your greatest fear. Pandora does have a hybrid model, where they generate revenue both from advertizers and subscription costs, but it's at the mercy of the royalty rates negotiated earlier.
When you're building your business plan, it's important to be realistic (and not overly optimistic, a common pratfall). Part of that reality-check is expecting things to change, and building in escape hatches in your long-term agreements. Pandora is now in a position where they are trying to lobby the government to lower the cap on music royalties, a move that is not popular with artists. Try to avoid that last resort!
Companies young and old can get in this bind: you need business to be in business, so you negotiate terms. Unforeseen and unforeseeable things happen, and the terms stop being tolerable. What's a company to do? Without paying the license fees, Pandora has no material with which to attract users to its site, and advertisers will pay less to access that audience.
If you business model is attracting advertizing dollars rather than selling a product, an increase in the cost of attracting an audience is your greatest fear. Pandora does have a hybrid model, where they generate revenue both from advertizers and subscription costs, but it's at the mercy of the royalty rates negotiated earlier.
When you're building your business plan, it's important to be realistic (and not overly optimistic, a common pratfall). Part of that reality-check is expecting things to change, and building in escape hatches in your long-term agreements. Pandora is now in a position where they are trying to lobby the government to lower the cap on music royalties, a move that is not popular with artists. Try to avoid that last resort!
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