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.
As detailed in a recent New York Times article, the primary roadblock 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,” according to the Times. 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.”
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. Therefore, it is important to work with an attorney who can help minimize the costs through creative solutions.
At Sheldon Mak & Anderson, we recognize that innovation is your competitive edge - and it needs protection. As a nationally recognized and awarded full-service intellectual property firm with more than two decades of experience, we provide local, regional, national, and international legal services in the following areas: patents, trademarks, copyrights, trade secrets, IP litigation, international patent and trademark prosecution, licensing, alternative dispute resolution, and green technology.
Contact our knowledgeable intellectual property attorneys today TOLL FREE at 1-855-UR IDEAS (1-855-874-3327) or email us at tri@usip.com to find out how we can provide powerful protection for your unique ideas.
