The more users it has, the more advertising it can sell against those pairs of ears. But at the same time, the more ears that are listening and the longer they listen, the more songs they hear and the more Pandora must pay out in music license fees.
Every time Pandora updates its financials ahead of its June IPO, it gives those who love the service hope that perhaps one day this company can turn a profit and become a real business, rather than a delightful sinkhole for venture capitalists who believe that you can make money by giving music away for free.
It was deja vu all over again last week when Pandora released its Q1 2011 accounts. The good news was its revenue more than doubled to $51 million for the quarter. Advertising sales were $44 million of that — an even larger increase. (Its subscription revenue was negligible.)
So why is this company taking on another $30 million in debt and showing a loss of $9.1 million? Because its business model seems to keep its costs for playing music in lockstep with its revenues.
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