Pandora recently filed their S-1, the document a company files as a prelude to selling stock to the public. There's much to like about Pandora — 80 million registered users streaming 3.9 billion hours of music, 2% of all radio listening. They turned down a suitor who offered about $550 million.
Now for the concerning part: music royalties. Pandora confirms in their S-1 that $45 million (half of their revenue) was spent on 'content acquisition.' And the outlook only gets worse — rates go up 9% every year. In 2009, Pandora's CEO proclaimed they were profitable. I was a lone voice to say that simply wasn't true. Now we know from their own records that they actually lost $32 million that year.
The unquenchable thirst for higher royalties of the music companies will continue to squeeze the life out of Pandora making it impossible for them to achieve any sizable profit.
--MR
