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business newsPandora IPO Set to Debut
By
Carol Kopp
Jun 14, 2011 10:15 am
As the music site prepares to debut its IPO, some say its popularity comes at too high a cost.
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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.
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.
No positions in stocks mentioned.
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