Pandora isn’t the first internet radio company, but they’re the first to get personalized internet radio right. Before their app launched in the early 2000s, music-based internet radio consisted of low-bitrate, pre-programmed channels with few personalization options. The service brought with it customized, personalized channels with artist discovery, adaptable selections, and a boatload of intuitive features.
Pandora’s popularity exploded when everyone and their grandmother bought a smart phone. For several years, Pandora’s internet radio app was the way to listen to music that wasn’t in iTunes or Google Play. While it didn’t let you select individual tracks, you could still drive around town and listen to better music than whatever terrestrial radio stations played. By 2014, the radio service has 250 million users signed up with their service, with some users paying a premium for ad-free service and other features.
Pandora’s existence was called into question when Spotify hit America in 2013. The Swedish service offered personalized radio and on-demand streaming of millions of songs. Numerous Spotify clones since launched and enjoyed varying degrees of success, while the internet radio service rested on their laurels.
Now, Pandora is a publicly traded company ($P) with a product that no one really wants. They’re trying to keep up with the times by introducing new software and services, but consumers are moving in a different direction. This begs the question: how is Pandora still around in the on-demand streaming age?
Pandora pays a lot of money to play music.
Pandora pays a royalty (fee) for each song played. They service is famous for going to court with groups like ASCAP (The American Society of Composers, Authors and Publishers) over their royalty rates. The company pays significantly lower royalties than Spotify, Apple Music, and the like. Though their royalties are pretty low, Pandora still pays millions in royalties each year for every song streamed.
Now that Pandora has a Spotify clone of their own, they’re likely paying more person, which costs them even more. For a company that’s lost money in the last year-plus, this isn’t good for their bottom line.
Pandora bought Ticketfly…and sold it at a loss.
Pandora bought Ticketfly in 2015 for $450 million. The Ticketmaster alternative let the company diversify their income by becoming an internet radio service and ticket reseller. Yet Pandora never actually made much money on Ticketfly. In fact, they lost money, as they just offloaded the company to Eventbrite for $200 million, taking a $250 million loss in total. Eventbrite, a ticketing company, will probably be able to make better use of Ticketfly, seeing as they’re a ticketing company.
SiriusXM invested a lot of money into Pandora.
SiriusXM ($SIRI) now owns 19% of the company’s common stock. They bought this stock for $480 million, and can now appoint board members, make important company decisions, and use Pandora to promote their own service. SiriusXM can use the internet radio service to distribute their own programs through a different platform. They can also help build and promote Pandora’s new premium, Spotify-like service as a viable alternative. As interests in satellite radio declines, SiriusXM could use Pandora’s platform and technology to reach internet-connected users in new and interesting ways, or at least profit from the service’s paying members.
Should you invest in Pandora?
The company really needs to get people interested in their service again. Pandora Premium lets users listen to any song they want, just like Spotify. The Premium service also gives users access to the old features used by millions over the last thirteen years. Yet the service launched four years after Spotify and two years after Apple Music. The on-demand streaming market is already near capacity, and more people are choosing to use Spotify and Apple Music over Pandora.
SiriusXM’s investment and Pandora’s new pile of cash could help the company regain users and make money. It could also just be throwing good money after bad money if Pandora continues lose users to cooler, more popular service. If you think Pandora has a bright future, be sure to do your research before you invest. If you think every other streaming service will outlive it, consider waiting for Spotify’s inevitable IPO.