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:
Market News and Data brought to you by Benzinga APIs- 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.
- 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.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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