Can You Be Profitable Offering Free Digital Music?

Digital music sites like Pandora and Spotify are extremely popular with music fans because they offer free or low-cost music on a variety of different devices from computers to smartphones. However, despite their growing number of users, these digital music companies are still losing money.

The primary roadblock to profit is the cost of music royalties. Even though Spotify and Pandora have adopted different business models, both companies devote a substantial amount of their revenue to securing music licenses. As a result, Pandora lost $20 million on $81 million in revenue in the first quarter of 2012, and Spotify lost $57 million in 2011, despite a significant jump in revenue.

In order to gain the rights to stream music, Pandora relies on compulsory licenses under the U.S. Copyright Act and pays the royalty rates established under the law (we will talk about compulsory licenses in greater detail tomorrow). Spotify, on the other hand, negotiates directly with the copyright owner.

Both ways are costly. Pandora devoted 54 percent of its revenue, for “content acquisition.”  While exact figures are not available for Spotify, its chief executive has stated that it returns 70 percent of its income “back to the record industry.”

How I Can Help

These two companies illustrate the high costs often associated with securing intellectual property rights. Even for successful enterprises, IP expenses can eat into a substantial portion of your revenue. So it is important to work with an attorney who can help minimize the costs through creative solutions.

If you or your company has intellectual property issues or needs to secure intellectual property rights, I can help you achieve your profit goals, here and around the world.   So, if you, or know someone,  can use my help, please contact me for a free 30 minute consultation by sending me an email or call TOLL FREE at 1-855-UR IDEAS (1-855-874-3327) and ask for Norman.

– Ex astris, scientia –

I am and avid amateur astronomer and intellectual property attorney.  As a former Chief Petty Officer in the U.S. Navy, I am a proud member of the Armed Service Committee of the Los Angeles County Bar Association working to aid all active duty and veterans in our communities.  Connect with me on Google +



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