I asked Pandora for a response and founder Tim Westergren replied:
We appreciate the scrutiny everyone's bringing to this - it's a very important issue, and one for which we feel a great sense of responsibility.
Here are some general thoughts from Pandora on this.
There are a number of reasons for us to add this requirement. It's something we've been contemplating for a long time. Just to be clear, it's not about making money from Amazon. We don't get any portion of the $29.95, and even though we're thrilled at the amount of music we sell through them, the commissions we get are a small part of the overall business (it's all about advertising). So these requirements have nothing at all to do with revenue.
There are really three principal reasons - user experience, improving the meta data, and managing submissions.
We believe it's very important from a user-experience standpoint to have functioning 'buy' links. We get loads of complaints about broken links when listeners try to buy an album that is not available on Amazon - when that happens it feels like Pandora is malfunctioning, and it's a real drag for a listeners - disappointing, and a waste of time. Requiring enrollment will of course mitigate this issue. It's clearly the right choice from the product/user experience perspective.
Clean meta-data is a constant struggle for us (and all online services for that matter). Our entire system is based on a concept of UPC and track information (perhaps someday that will change, but it's one of our most basic building blocks dating back almost 10 years)- it's how we identify the music internally and talk to all sorts of external partners, vendors, distributors, etc. We also need album art; and we get all of this from Amazon. Requiring registration at Amazon is a very effective solution for us.
Finally, it serves as a way to manage our flow of submissions. Pandora remains intensely focused on providing a level playing field. Our aim is to find the best music we can - indie, major or otherwise - and to add as much of that as we can. Given our sole focus on quality, we're looking for folks who have a demonstrated seriousness about their craft. Just as investing the time and money to create a professional sounding CD is a strong predictor of quality, having invested or being willing to invest in an online distribution mechanism is another signal.
We are huge believers in not discriminating against aspiring/emerging artists - 70% of the 75,000 artists in our collection are not on a major label. All we're asking of artists is to make great music, and have it available for easy purchase for Pandora's audience.
I hope this makes sense.
One additional clarification.
mreasy: Pandora pays tens of millions of dollars per year in royalties to artists and terrestrial radio pays nothing. Although it's not pertinent to this particular conversation, Pandora pays a substantial percentage of its gross revenue to artists.
Thanks Tim (Founder, Pandora)
