Music streaming

Pandora is melting down

The internet radio pioneer hasn’t turned a profit in 17 years.

Music streaming

Pandora is melting down

The internet radio pioneer hasn’t turned a profit in 17 years.
Music streaming

Pandora is melting down

The internet radio pioneer hasn’t turned a profit in 17 years.

Pandora, the first music streaming service to find mainstream success, has now been around for 17 years. And it’s never made money.

At one point, Pandora was a Goliath, but it lost that dominant position long ago — in part because it stuck with an unscalable model that relied on human music analysis, which takes 12 to 15 minutes per song, while competitors relied on algorithmic analysis. Now, after a $480 million investment from Sirius XM, Pandora is making what could be its final push for profitability. That push included selling its Ticketfly business in order to have more cash on hand for “targeted investments,” which might help Pandora add new users. “Pandora, Faded Star of Online Music, Gets Cash Infusion from Sirius XM,” wrote Dealbook in June.

Pandora has overcome hardship before. It was founded with a $2 million investment in 2000 with the idea of serving listeners music they didn’t even know they wanted to hear. Pandora is essentially an internet radio station powered by its proprietary Music Genome Project, a catalogue of tracks that have been carefully analyzed and categorized by trained musicologists.

From the outset, that model assumed that listeners preferred passive discovery over seeking out specific songs and artists. With Pandora you could set a station based on an artist or a song and then simply thumbs up and thumbs down the songs it picked. Pandora learned things about its listeners — they wanted more predictable, repetitive songs during the day, for example, when they were at work, but were more open to new things at night. People liked Pandora because it was simple and its recommendations were good. Artists liked Pandora because it could introduce them to new audiences. Stores and bars liked Pandora because they could put it on for background music.

Still, Pandora had a rocky start. The company ran out of money in 2001; founder Tim Westergren legendarily convinced 50 faithful employees to work for two years without pay while he sought new investment. The company grew to 80 million users and went public in 2011, all on the strength of this concept of a radio station that picks the music for you.

This passive listening model might have worked, except that Pandora couldn’t grow its catalog fast enough. The reliance on human musicologists meant Pandora still had fewer than 2 million songs in its repertoire as other streaming services boasted more than 30 million. Pandora’s user growth slowed, but even more users wouldn’t have helped as the company’s costs increased just as quickly as its revenue. Finally, earlier this year, it introduced a Spotify-style service called Pandora Premium, which allows users to play specific songs on demand. Pandora has had 500,000 trial starts since introducing Premium, but analysts speculated that it was too little, too late, and that it would be difficult for Pandora to snatch users back from other services. The company faces an uphill battle.

If Pandora does manage to pull off a second comeback, it’ll be without Westergren. He resigned as CEO and board member last week, likely as a condition of the deal with Sirius. Westergren was criticized for, among other things, refusing to sell Pandora to Sirius outright at $15 a share; at the time of writing, Pandora’s stock was worth $8.89.

Pandora also laid off 7 percent of its staff at the beginning of 2017. In June, Pandora announced its president and chief marketing officer were leaving the company and it was exiting New Zealand and Australia, the only two markets it served outside the U.S.

Pandora is now on the hunt for a new CEO, with CFO Naveen Chopra stepping in as the interim CEO. Richard Harker, a radio market researcher and longtime Pandora skeptic, isn’t optimistic. “Over the past few months most of the executive positions have turned over, Westergren is just the latest,” he told The Outline in an email. “They started letting staff go beginning in January. They’ve made multiple downward revisions to their revenue guidance — they’re still losing money. And there’s still no path to profitability.”

There are some bright spots for Pandora. It has a strong brand, especially with country music fans. Spotify, its only major competitor that is not propped up by a massive technology company, is also struggling to make money while also keeping up with streaming licensing fees.

If Pandora does collapse, it will be no surprise. Other independent music sites like Rhapsody and SoundCloud are experiencing similar struggles as the music streaming market cements around the big three: Spotify, Google Music, and Apple Music, with Amazon potentially grabbing a bigger share of the market in the future. And Pandora will join the pile of streaming music flops that includes Rdio, Grooveshark, and Myspace.

Correction: An earlier version of this story said Pandora had not released numbers for its Premium product; that was incorrect. Pandora released some metrics on its earnings call.

Sound show

The Music Genome Project isn’t done

Pandora is still betting that humans know music better than machines. How’s that working out?
Read More