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Subscription Radio Cannot Work Unless . . .

Big success stories such as Time Warner's (TWX - Get Report) HBO and Liberty Media's (LMCA) Starz and Encore have cable and satellite companies by the short hairs. For all intents and purposes, they run in a different world.

Satellite and cable companies maintain viable businesses because, somewhat ironically, they get fleeced by the content owners. Cable and satellite turns around and charges premium rates to subscribers because, contrary to popular meme, cord-cutting -- at least at this point -- is not viable for most viewers, who want live sports programming, first-run television shows and movies and other exclusive content.

Even if content goes digital -- think HBO GO and the myriad TV Everywhere ventures -- you need a traditional subscription (or subscriptions) to access it.

Subscription-based businesses without a stranglehold on premium content run at a loss, burn cash and get fleeced even worse than cable and satellite. Think Netflix ( NFLX - Get Report ). Think Spotify.

All day long on Twitter, I see the media regurgitate headline after headline -- Spotify announces it has over 5 million paid subscribers globally, 1 million paid in U.S., 20 million total users -- as if that's a good thing. It sounds awesome, but none of these stories talk about scale.

Pandora has that ability because -- and primarily because -- it focuses on the free model. Scoff at it all you want, it works. It's been working for quite some time. When you assess free- vs. subscription-based models in radio and television, the scale problem becomes obvious, specifically if you are not offering exclusive/premium content to a niche audience.

Try to go mainstream with content available everywhere else and you'll go nowhere charging for your product.

In fact, you're better off charging more. If people love Netflix and Spotify so much, they'll pay more for these services just like the Sirius XM user.

As Netflix improves the quality of its content -- and it has big time over the last 12-18 months -- it needs to look at raising prices. I would rather have seven subscribers at $20 a month than 10 at $10 a month.

And, don't forget, if Netflix charges more, programmers will be much more willing to license it better, more premium content, quite possibly on an exclusive basis. We'll see plenty more deals like the Disney (DIS) one. Of course, Netflix cannot afford to cut these deals without a major boost in revenue. It all circles back.

--Written by Rocco Pendola in Santa Monica, Calif.
Rocco Pendola is TheStreet's Director of Social Media. Pendola's daily contributions to TheStreet frequently appear on CNBC and at various top online properties, such as Forbes.
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