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I missed this until now but Sarah Lacy at TechCrunch has an interesting post on Internet radio business models. This is told through the story of Pandora, which had a few brushes with fatality, since being alleviated by grassroots action, funding and a favorable RIAA settlement.

I’ve been a big fan of Pandora for a while, including the technology behind it. It is rooted in the Music Genome Project, which algorithmically recommends songs based on attributes of the music you like. It takes into account the beats, tempo and other things, rather than behavioral targeting or “other people also liked…” This makes it a novel discovery engine, which has caught fire and doubled its user base over the past year.

Combining the discovery aspects of radio with two-way IP-based communication has meanwhile opened the door for affiliate revenue from iTunes purchases — something terrestrial radio is beginning to look at in its possibilities for transmission to mobile devices (something we’ve explored in the past).

Mobile is in fact another factor that has caused Pandora to gain popularity so quickly. The growth of smartphones and the mobile Web has caused rich media streaming to become more portable and services like Pandora to find a natural home.

This could be one reason for the radio industry to take a more earnest look at the mobile opportunity — given that it is a longstanding media that is 1. inherently mobile 2. the original music discovery engine. Music discovery that is integrated with a device capable of two-way interaction is, however, where a new opportunity lies.

This is where things not only get interesting with affiliate revenues for song purchases, but also for things like local event promotion. From TechCrunch:

Pandora also has more creative ways of advertising. Westergren also talked off camera about a recent gig in LA for Aimee Mann. Pandora sent an email to users in driving distance of the club that it knew loved her music and the venue quickly filled up. “Can we do this every night?” the club owner panted.

Pandora didn’t charge the club anything for this, but there’s clear opportunity to do so. This kind of promotion plays directly to Pandora’s strengths especially now that it’s on iPhones, Palm Pre and Android.

It’s an interesting take and we’ll likely see the company move in such directions as it continues to evolve its business. Read the rest of the article here, including additional commentary from an NBC Press:Here interview with Pandora CEO Tim Westergren.

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