Show me the money...

December 12, 2006 9:39 AM

Where do sites like Pandora & Last.fm make their money? I use both sites and others that have no or limited advertising and I'm very curious as to how they can support good looking websites with some degree of infrastructure behind them (staff, music rights etc). Also I'm keen to find out how I would go about pricing up my idea for a site that works in a similar vein but with a twist...

I have an idea that seems like a natural evolution from the sites already mentioned and I think it really would be a very well received concept that could take off. I'm just not sure of it's potential to make money without knowing more about potential revenue streams. Can anyone help me find out how much it would cost to put together without losing my idea to someone (ie a web deisnger)? I know that I would have to put together a business plan as well which clearly involves profit/turnover predictions but I'm finding it hard to work out where the money comes in for sites like Pandora and to what level. I don't have any experience in web design so will have to outsource the whole process. Any help/advice greatly appreciated.

posted by mjlondon to technology (13 comments total)

last.fm has CD ordering facilities, you can buy downloads of tracks, and you can subscribe to get extra features for £1.50 a month. They also have affiliate schemes with ticket bookers, and you can download tracks. I think they work on the idea of little and often for making money from their users.
posted by philsi at 9:42 AM on December 12, 2006

Last.fm sells marketing info and promotional services such as banner ads and powerplays to labels. Best thing to do would be to contact them, say you're a an artist or label and ask for details on marketing services and prices. There's an "artist and label" link on Last.fm.
posted by gfrobe at 9:58 AM on December 12, 2006

Web designer costs:
I do some of my work for very small businesses and non-profit organizations. I can usually do such a site for under $1000 (at $75/hr). Many other designers I know charge more, and some less, but won't take a job that small. (I should point out that the small sites are all basic multi-page sites; no streaming media or shopping carts; no content management systems.)

Essentially, the more input and micromanaging of the website you want to do, the more it will cost. If you find a designer who gets your idea, and you trust him/her to come up with a good and functional design, you will save some money.

Of course, you probably need a logo designed and some other things, like photography, etc. That adds to your cost.
posted by The Deej at 10:44 AM on December 12, 2006

Deej, are you talking about just HTML design or programming as well? I can guarantee you that both Pandora and last.fm took far more than 14 hours to develop. That even seems low for the HTML/images alone.. those sites have a LOT of different pages and a LOT of different looks, including quite a bit of javascript.
posted by devilsbrigade at 11:04 AM on December 12, 2006

You are exactly correct, devilsbrigade. I wasn't clear in making the distinction between my small "brochure" websites, and the actual sites mentioned. I was trying to give the OP the idea that even a very simple HTML and javascript site runs at least a thousand, so something like last.fm would cost way more. It's not uncommon for very small businesses to pay 10 - 15K to get a site up and running. Some even go into the tens or hundreds of thousands.

You are also correct that 14 hours is pretty low, even for a small site. The only way I can do that is with clients who are already familiar with my work, and trust me to do it as I see fit, while meeting their objectives. Plus I can work pretty fast if I am not in endless design meetings with the client. I only offer that kind of proposal to organizations with very little resources, or who don't see the value of even having a website. A lot of these clients end up adding to their sites as time goes on, so it does give a foot in the door for more design work.
posted by The Deej at 12:23 PM on December 12, 2006

Did you perhaps look at the sites in question? The second entry in Pandora's FAQ:

"Q: How much does it cost?

Pandora is available in two forms. Both versions have exactly the same features.

The first form is an advertising-supported version which is entirely free. Over time we'll be incorporating ads into this version of Pandora.

For those who want to steer clear of advertising, subscriptions are available in two different flavors:

ANNUAL: 12 months of unlimited use for $36
QUARTERLY: 3 months of unlimited use for $12"
posted by jacalata at 1:06 PM on December 12, 2006

Well, I pay my money for last.fm I love the site so much I thought I should shell out.

Makes me feel like I have good karma from all the illegal music I've downloaded over the years....
posted by gergtreble at 1:17 PM on December 12, 2006

I want to know how the hell they got all that music in their libraries. I imagine they had to have paid millions for those songs. Or else, you know, steal 'em.

But hey, free music. Weeeeeeee.
posted by sachinag at 2:17 PM on December 12, 2006

I donated ten pounds to last.fm way back when they were starting out (mid 03 or so?) and really struggling to stay afloat. I used to hang out in their irc channel and one of the staff members told me (a little tongue in cheek) that they'd bought a pixies cd with the donation which they then burned and used on the site. made me happy.
posted by humuhumu at 2:26 PM on December 12, 2006

sachinag: they license the music, see here for last.fm
posted by Infinite Jest at 2:38 PM on December 12, 2006

I want to know how the hell they got all that music in their libraries. I imagine they had to have paid millions for those songs. Or else, you know, steal 'em.

Just like every radio station, I'm sure the music is either given to them or they purchased it just like you. They then pay royalties through ASCAP, BMI, and Sesac. There are two royalties paid: one royalty for the sound recording, and another for the actual composition of the song. (Over the air radio stations only have to pay one royalty for the actual composition - go figure.) The current rate is 9.1¢/song, and it goes up every 4 or 5 years on a set schedule. You can check out exactly what it is here, and check out the digital performance rights here.

I answer this question because the person who's looking to start a competing site also needs to know that these are usually the bulk of gross money going out the door at any radio station, and it's pure overhead. The good thing is that you don't really have to get licensed, per se, like an over-the-air station. You're going to need to get in touch with each of those companies and try and find out what a bulk license will run you - and you can go ahead and know it's in the thousands, and as you get more popular, it'll go up to compensate for the amount of songs you play.
posted by plaidrabbit at 2:40 PM on December 12, 2006

Sorry, that first link is broken. The correct link is here.
posted by plaidrabbit at 2:50 PM on December 12, 2006

I saw a talk by the founder of pandora a few months ago. When asked about how they made money, his answer was basically that they do not make money currently.
posted by alikins at 5:23 PM on December 12, 2006