How to lose customers: Pandora.com

By | June 28, 2007

Pandora’s service is without comparison: it allows you to find musical styles and within that research wonderful new artists that you wouldn’t otherwise find. This is what the website says about itself:

Pandora is a music discovery service designed to help you enjoy music you already know, and to help you discover new music you’ll love. It’s powered by the most comprehensive analysis of music ever undertaken, the Music Genome Project: a crazy project started back in early 2000 to capture the complex musical DNA of songs using a large team of highly-trained musicians.

Unfortunately, citing the DMCA, they have pulled almost the entire service for those outside the geographic USA. Recently, their chairman wrote:

Dear Pandora Visitor,

We are deeply, deeply sorry to say that due to licensing constraints, we can no longer allow access to Pandora for most listeners located outside of the U.S. We will continue to work diligently to realize the vision of a truly global Pandora, but for the time being we are required to restrict its use. We are very sad to have to do this, but there is no other alternative.

We believe that you are in Taiwan (your IP address appears to be ***.***.***.***). If you believe we have made a mistake, we apologize and ask that you please contact us at [email protected]

If you are a paid subscriber, please contact us at [email protected] and we will issue a pro-rated refund to the credit card you used to sign up. If you have been using Pandora, we will keep a record of your existing stations and bookmarked artists and songs, so that when we are able to launch in your country, they will be waiting for you.

We will be notifying listeners as licensing agreements are established in individual countries. If you would like to be notified by email when Pandora is available in your country, please enter your email address below. The pace of global licensing is hard to predict, but we have the ultimate goal of being able to offer our service everywhere.

We share your disappointment and greatly appreciate your understanding.

Sincerely,

Tim Westergen

This is an open letter to Tim Westergen,

Dear Tim Westergen,

You may share my disappointment, indeed. Unfortunately, turning away millions of customers in this fashion shows an incredible failure of both leadership and vision. When you turn away customers in this fashion, you unleashed a number of problems the consequences of which may very well come back to haunt both your company, and the US entertainment industry (which currently seems bent on extracting every possible ounce of flesh without understanding the long term consequences of such actions!) in general.

I think this decision, while understandable, is perhaps one of the most short sighted decisions I’ve ever seen, and is typical of companies in the US who resort to dealing with a technologically changing environment by employing lawyers whose sole function is to cover their own asses. I think this decision is bad for your (former) customers, your own company, and bodes ill for the US economy; and here’s why.

First, I realize as a small company that you have little choice; however, you have no idea of the goodwill that you are giving up now, that will be VERY hard to recoup or replicate, and that (when you do decide to reenter international markets) it will be MUCH harder because each of the markets you intend to enter will have developed indigenous competition that will give your company a run for its money or simply roll right over your company. Korea, Taiwan, Japan, and China all have hungry technology companies that would LOVE to have one less competitor to worry about today, so that tomorrow they won’t have to fight so hard once their market is established.

Secondly, it is clear to me and many billions outside the US who would like to download music legally, pay for it, and listen to music that isn’t otherwise available in their countries, are being denied choices by corporation lawyers who fail to find imaginative ways to solve the problems created by poorly framed laws. In many cases, many such individuals will resort to the P2P networks that have been the bane of IP laws everywhere. It’s only when companies realize that failing to serve such a market is WORSE for their profits and their business models that these customers will start to be treated well by companies such as yours.

Thirdly, the legal framework of the US is now such that more companies are now choosing to list their stocks in Europe (in London or one of the other large European bourses – they are shopping for legal frameworks that they find conducive to doing business, to making money, and to serving their customers. How long will it be before companies start shopping for countries with more favorable regimes for IP laws. With increasingly restrictive IP policies in the US, how long will it be before even US companies feel so constrained by the legislation that they have to move offshore.

Fourthy, Pandora.com has so much goodwill in its international customer base that I cannot believe you wish to throw it all away. Haven’t you any idea how much it will cost to buy such customers in the future? You have what many companies can’t buy, no matter how much money they throw at the problem, customer trust. If you turn your back on your international customers now, you will likely never get them back.

It’s one thing to say upfront who your customers are and aren’t. It’s another to turn your back on them, once they are your customers. I don’t believe that Pandora.com will recover internationally from this decision; I believe that internationally Pandora.com is now dead as a dodo. Other competitors in Europe (nearly 810 million potential listeners!), Asia (over 3.7 billion potential listeners), South America (371 million potential listeners), etc, will step in, they may not fill exactly the same void, but fill it they will.

Doubt me at your peril: in Taiwan, Kimo set up a long time ago, was recently purchased by Yahoo! and had built up an unassailable lead in online auctions over that time, such that when Ebay finally decided to enter the local market directly, they couldn’t shift the leader, no matter what they did. In fact, last year they bowed out gracelessly of this market and several others in Asia. They couldn’t buy an audience with their advertising budgets; the local market already loved Yahoo! Kimo auctions, even though Ebay had a better service, it was too late.

In effect, Pandora.com is giving up its real and tangible international business in exchange for the chance to create lots of national businesses as they license country by country. Internationally, Pandora.com could garner millions of listeners as a userbase to sell CDs to, make money from an affiliate relationship with Amazon.com (etc.), but as a series of national markets, some or many of these countries just wouldn’t have the population mass to justify the effort. In those others that are big enough, competition will prevent Pandora success, because Pandora will lose its lead.

So, thanks Tim, thanks for Pandora and all its wonders. It was a great service, but now the lawyers are running the company; I’ll be tuning to one of the other 10000 online radio stations. Thank god the internet is available outside the continental US, otherwise the RIAA would try to close that down, too.

Yours sincerely,

Kenneth

The license for this posting is granted to all but the lawyers employed by Pandora.com (or hired by Pandora.com for advising them) to read, print, copy and redistribute as you wish in its entirety. However, any Pandora.com lawyer or any RIAA lawyer who subsequently reads, receives or prints out any copy of this email, either in part or in whole, shall be liable to pay the sum of $10,000 to InvestorBlogger.com within 30 days because of their spinelessness in allowing this decision to be made.

4 thoughts on “How to lose customers: Pandora.com

  1. Tim Westergren

    hi kenneth –
    Thanks for taking the time to write this challenging, and provocative note regarding our decision to shut Pandora off internationally. That day was one of the worst days for us.

    I of course share all of your concerns about losing the momentum, and the risk of damaging the goodwill of our int’l listeners (though the email we’ve received has been almost uniformly supportive and understanding). The first point I need to make is that this is NOT a function of US laws. The US is actually the most advanced in providing a legal framework for webcasters (DMCA). We’re being hampered by the licensing situation in other countries. No other country has the licensing infrastructure in place to collect and distribute the performance fees required by law. We’ve been told to turn Pandora off. If we don’t, we’re wilfully violating copyright laws. Are you suggesting that we ignore the directives of the labels that own the music in these countries? It’s terribly frustrating as we know full well the benefits that Pandora gives to every part of the ecosystem, but I think we’d be foolish to think that we can skirt these laws with impunity. It’s also not in our DNA to ignore such laws that were created to protect rightsholders.

    Perhaps we’re being too conservative. It’s painful to watch other companies prosper by violating these laws, but we don’t think that means we should do the same. We’ve already seen a major jump in activity among the rights associations around the world trying to fix the situation (our fingers are crossed).

    Personally, I think this will only make us stronger when we do launch legally around the globe. The way I see it, we’re taking the tougher road, but the road you have to take if you want to build a long term, legal business that can really shape the industry, and change the lot of musicians. We could try to quickly build a huge international audience then seek protection under the wings of a larger media company, but that’s just not our ambition. I come to Pandora from many years as a working musician and I want to really make a difference – perhaps catalyze the viability of a global musicians’ working class.

    Hope this makes sense – and thanks again for sharing your passionately held viewpoint.

    Cheers. Tim (Founder, Pandora)

  2. kennethdickson Post author

    Tim,

    I’m flattered that you took the time to read my ‘little’ blog. I’m going to post a devil’s advocate type post soon to examine the rights holder’s side of things. After reading your post, and thinking about how I would feel if someone rebroadcast my work without compensation (esp. if it was for work that I do to put bread on the table)…

    I’m confused about several things in your postings, but I’ll do my other post first, before I look at your post’s arguments again!

    Thanks,
    Kenneth

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