Online radio site Pandora closed its UK operations last week after failure to negotiate a deal with royalties collector groups forced it out of business.

The music industry has been hit hard by the rise in piracy that has accompanied the growth of the internet. Attempts to control the use of legitimately-acquired electronic tracks have largely backfired and Sony BMG has just announced its intention to scrap digital rights management, ­the last major label to do so.

But Pandora’s fate suggests that the debate over copyright protection is far from over.

The site allowed users to create a personalised radio station, streaming a selection of tracks based on their listening habits. Unlike similar sites, Pandora actively sought to legalise its activities by negotiating a deal with royalties agencies.

But the “interactive” per-track rates were simply too high to be sustainable by Pandora’s advertising revenue.

So after a year of fruitless negotiation with the Phonographic Performance Limited (PPL) and the Mechanical Copyright Protection Society, the site has cut its UK service.

“It astounds me that the industry is not working more constructively to support services that introduce listeners to new music and are supportive of paying fair royalties,” said Pandora founder Tim Westergren.

“The consequence of failing to support companies such as Pandora will be the continued explosion of piracy, the constriction of opportunities for working musicians, and a worsening drought of new music for fans.”

The PPL offer price is based on a business model determined by US controllers and is equivalent to the rate determined by the UK Copyright Tribunal, said a spokesman.
“We very much regret Pandora’s decision, but music has a value and that value has been agreed upon by an independent commercial body,” he said.

The PPL said it will continue to work with entrepreneurs and remains optimistic for the future of internet radio.

“Inevitably in any kind of growing market there is always a high level of churn because people are learning as they go along,” said the spokesman.

“You can always tell the pioneers because they’re the ones with arrows in their backs.”

Royalties agencies would do well to embrace companies that pursue a legal business model, said Gartner analyst Mike McGuire. Without other options, many users will turn to piracy.

“It may force consumers to find other ways to get their music,” he said.

“The concern is that when the controllers eventually come around and look about for an ally such as Pandora, those companies will not be there.”

Pandora’s Box

- The site builds personalised music compilations by studying the listening habits of its users.
- In July last year copyright issues forced the company to curtail global access, and with the close of its UK operations last week, the service can now only be used in the US.