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April 4, 2013

Pandora, Co-Founder Tim Westergren Take On Music Industry's Elite in Royalty Fight

(Continued)

MIAMI —

Later that year, the company hired a new chief executive, Joe Kennedy, a former E-Loan and Saturn executive. Westergren had been trying with only limited success to license his music genome to businesses that sold music. Kennedy, who stepped down last month after nearly a decade at the company, developed the idea of using the music genome in an Internet radio service, Westergren says, and he also wanted to dump its name, Savage Beast Technologies. Westergren asked Gasser for ideas. He came up with . . . Pythagoras!

At lunch one afternoon, Kennedy scribbled P-a-n-d-o-r-a on the back of a Billboard magazine. All the wives and partners of top company officers had the same reaction: "But bad things came out of the box!"

Then there was the matter of the cybersquatter who owned the URL; Pandora bought it cheap. And the defunct Idaho cover band that owned the trademark, Pandora's Box; they hired a private investigator to find the former members and made a $5,000 deal for the name.

Easier to spell than Pythagoras.

Pandora grew fast — faster than its ability to monetize the service. But, less than two years after launching, it was about to run headlong into a threat that could have killed it.

In 2007, a federal panel — the Copyright Royalty Board — issued a ruling that would have raised the royalty rate paid by webcasters so high that it would have forced them out of business. Drama ensued. Op-eds were crafted, members of Congress raised a fuss. What resulted was a deal: Pandora, other music streamers, performers and the recording industry agreed to a new set of rates, and Westergren declared "the royalty crisis is over."

The pace of Pandora's growth was hypercharged by smartphones. Its iPhone app doubled its user base. What Pandora needed to do was slow down. In 2009, the company enacted a 40-hour-a-month listening cap, a way of limiting how much it paid in royalties without having to sell more ads that might have driven away listeners. There was an uproar. Westergren says he got four death threats.

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