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Personalized Web Radio Station Pandora Adds Ads To Free Service

January 23, 2009 9:18 AM ET

Four-year-old Internet radio station and "music genome project" Pandora will start to add commercials to their free service (the $36 per year premium membership will remain ad-free). With 21 million registered users and 2 million daily visitors, Pandora uses a listener's music preferences to format a radio station based on their taste. It's like iTunes' Genius, except it doesn't just use music in your catalog. The company had experimented with ads in the past, but now audio advertisements will become a regular part of the service in an extremely low-impact way: one 15-second ad will only play every few hours. The company's Twitter made the following announcement: "So you know, we did not take on audio ads lightly. We try to be extremely respectful of your listening experience, & promise to be prudent."

So far, American Idol, Bose speakers and McDonald's have bought ad time from the service, while companies like Best Buy and Kraft advertise through graphic ads on Pandora's iPhone service (which is not currently running audio ads).

Pandora hit a rough patch in 2008, as the high price of Internet radio royalties began to take its toll, almost leading to its demise in August 2008. The company makes all its revenues from advertising, but 70 percent of its earnings were going toward royalties, as digital radio had to pay high fees that terrestrial and even satellite radio stations didn't have to pay. While the royalty rates still haven't deceased, a reduced fee is expected in the future, so hopefully these new ads will help Pandora keep afloat while the record companies and Internet radio work toward a new rate.

Related Stories:

Pandora Says High Royalty Rates Are Putting Them Out of Business
Widget Hopes To Save Pandora, Internet Radio
Pandora Radio Leads The Best New Music-Related iPhone Apps

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