Pandora IPO Set to Debut

By Carol Kopp As the music site prepares to debut its IPO, some say its popularity comes at too high a cost. Internet-based music service Pandora debuts its IPO on Wednesday with the kind of rags-to-riches story that investors ought to love: Sole survivor of the War of 2000 between the music industry and streaming music online. A near-death experience in 2007, again at the hands of the music industry, followed by a last-minute reprieve and then a huge wave of growth. Trouble is, the music industry still can't seem to decide whether to kiss it or kill it. And that may make many potential investors kiss it off, at least for now. (To read Matthew Mallon's article on Greece's downgrade, click here.) About 90 million people have signed in to create their own radio stations that play only songs that have similar attributes to their favorite songs or artists. Some 60% of its users are now listening on mobile devices. The Apple AAPL iPhone app has been a key driver of its recent growth; at the moment Pandora is Apple's most popular free download. It's also available for Google GOOG Android devices, Research in Motion's RIMM Blackberry and Microsoft MSFT Windows phones. Pandora makes most of its money from advertising-- $90 million in its most recent quarter, an increase of 137% over the previous year. It still lost nearly $7 million, and it hasn't turned a profit yet. There are two big problems going forward, and they are life-and-death issues for Pandora:

• Royalties to music owners eat up nearly half its revenues. The meter ticks over every time a user plays a song, so in effect subscriber growth is costly. This could get worse in 2015, when its current agreements expire.
• Its growth in mobile use is impressive. Problem is, mobile ad rates are really low—much lower even than Internet advertising.

So, the question going forward is whether Pandora can alter the laws of its little musical universe. Will the music industry settle for a royalties payment model that allows the music streaming industry to exist? And will the hyper-growing mobile market start attracting higher ad rates? (To read Brett Chase's thoughts on the funding challenges of small biotech firms, click here.) Pandora's IPO will be introduced Wednesday, June 15, under the ticker symbol P. Just last week, it raised its mid-point price by 38%, to $11 a share. In Depth:

• MarketWatch argues that Pandora's future is dim unless they can negotiate a more favorable royalties agreement.
• Fortune evaluates Pandora's business plan, and concludes that it's losing money every time somebody tunes in.

In Brief: Facebook Fatigue: As it closes in on its 700 millionth user, the stupefying worldwide growth of Facebook masks a significant recent loss of users in the United States and other countries where it established its early growth. The social network lost almost six million users in the U.S., and also dropped in popularity in Canada, Great Britain, Norway and Russia. The numbers are only for the month of May, so it's not clear yet whether that's a trend or a blip. Inside Facebook follows up with a look at the figures from other data sources. That bit of bad press coincides with a flurry of reports predicting that Facebook will go public in early 2012 and promptly go ballistic, to the tune of a $100 billion valuation. (To read Diane Bullock's article on Obama's campaign donations, click here.) Google Confirms Admeld Purchase: Google has acquired display advertising technology provider Admeld for a reported $400 million. The purchase is expected to strengthen Google's ad management and sales tools for large publishers. New York-based Admeld was founded in late 2007. Angrier Birds: Google pulled 10 apps out of its Android app marketplace after they were found to contain malicious code, including spyware. All of them posed as add-ons to the popular Rovio mobile game Angry Birds. But Wired says there are more malware-infected apps in the Android store, and that Google's freewheeling marketplace policies are to blame. To read the rest, head on over to Minyanville.