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Rdio to close as Pandora buys the firm’s assets

By | Published on Tuesday 17 November 2015


Streaming service Rdio is to be wound down after Pandora agreed to buy the firm’s key assets in a $75 million transaction. The deal is contingent on Rdio filing for bankruptcy protection.

As the on-demand streaming domain started to gain momentum a few years back, Rdio was often seen as the third player in the market, after Spotify and Deezer, perhaps most notable for its slick user interface. But it never achieved the same kind of growth as it rivals – especially Spotify – and was always suspiciously silent on its user figures.

Rdio chose not to offer the fully on-demand streaming experience for free. On one level this was sensible, freemium on-demand streaming is almost always loss-making and therefore expensive for digital services, and free on-demand streams have become unpopular in the music community too.

Arguably the Rdio model – personalised radio for free, on-demand streams for $10 a month, and some mish mash option in the middle – is where the streaming market will ultimately end up. But in the short term, Rdio’s limited free level made competing in a crowded market-place, and against Spotify and YouTube, a very tricky task indeed. Its demise, therefore, isn’t a surprise.

Pandora’s decision to buy its assets, and some of its talent pool, is, perhaps, more surprising, though the deal is further proof that diversification is at the top of the agenda for the market-leading personalised radio company. Pandora says the acquisition, which will need to be approved by the Californian bankruptcy courts, will “accelerate the company’s plan to offer fans greater control over the music they love, strengthening Pandora’s position as the definitive source of music”.

Like most streaming firms, Pandora currently has two revenue streams, offering an ad-funded free service and a paid-for subscription service. But the latter has never gained much traction, perhaps because people don’t want to pay for the limited-functionality personalised radio experience, even if it means losing the ads and getting more track-skips.

Having seemingly decided that its ad sales business will never be enough to sustain the company alone, Pandora is on the hunt for other revenues, and other ways of monetising its 78 million monthly users, most of whom are in the US. Hence the firm’s recent move into ticketing. And now it plans to offer a more sophisticated service for paying subscribers.

Pandora can license its personalised radio service in the US entirely through the collective licensing system. Labels are obliged to license through SoundExchange under US copyright law, and the publishers are currently obliged to license via their collecting societies too, with fees ultimately set by the rate courts.

This unique licensing framework helped Pandora launch early on in the evolution of digital music, enabling its massive market penetration Stateside. Though it has also limited the firm’s global growth, because similar licenses are often not available elsewhere. And it has resulted in frosty relations with the music community, which doesn’t like being forced to license a company that made its founders rich on flotation, but which has constantly tried to reduce its royalty commitments through the Copyright Royalty Board and rate courts.

Nevertheless, the firm has started to do some direct deals with rights owners, with Merlin on the labels side, and with BMG and now Sony/ATV in the songs domain. These new relationships should help Pandora with its newly energised ambition to enter other markets, and its now declared plan to offer on-demand services, which are not covered by the SoundExchange license even in the US.

What the upgraded Pandora subscription service will look like remains to be seen, and it will likely take a year to evolve, given the personalised radio firm is getting Rdio’s technology and talent, but not its licences. Perhaps Pandora thinks it can make Rdio’s personalised-radio-for-free/on-demand-for-cash model work, given the scale of its existing freemium set-up.

Though it’s debatable whether the market really needs another ten-dollars-a-month thirty-million-tracks on-demand service like the one Rdio was offering, and it seems unlikely that the average Pandora free user would want to spend $120 a year on music, whatever the service looked like. But perhaps Pandora can use all that Rdio expertise to create the middle-market few-dollars-a-month service that the mainstream market needs.

Confirming the Rdio deal yesterday, Pandora boss Brian McAndrews said: “Whether streaming through radio, on-demand or in-person at live events, Pandora is building the definitive source for fans to discover and celebrate music. Wherever and however fans want to hear music, we intend to be their go-to destination”.

He added: “We are defining the next chapter of Pandora’s growth story. Adding live music experiences through Ticketfly was a transformative step. Adding Rdio’s impressive technology and talented people will fast-track new dimensions and enhancements to our service. I couldn’t be more optimistic about Pandora’s future and the future of music”.

Meanwhile Rdio’s CEO Anthony Bay, who will not join Pandora as part of the deal, added: “The Rdio team built an acclaimed product and technology platform that has consistently led innovation in the young streaming industry. I’m pleased that many members of the Rdio team will continue to shape the future of streaming music, applying our tradition of great design and innovative engineering on an even larger stage with Pandora”.

Of course, there is the messy matter of the bankruptcy proceedings before this exciting new chapter in streaming music history can occur, because Pandora is not buying the Rdio company outright, and doesn’t want to take on the firm’s debts and liabilities. Rdio will apply for bankruptcy protection, after which the Rdio-branded service will be shut down. The Pandora deal, and any other transactions relating to the Rdio business, will then go before the court for approval.