Pandora Needs Rdio To Make A Profit

Pandora plans to open a subscription-based, on-demand version of its music-streaming service because advertising revenue may not be enough to offset its ballooning content acquisition costs.

On Monday Pandora announced that it has agreed to acquire technology from streaming music service Rdio for $75 million in cash.

According to adage.com, the internet radio company plans to use that technology to launch an on-demand version of its service in order to better compete with rivals Spotify and Apple Music, both of which offer radio and on-demand music-streaming services, and to be able to afford all the music people listen to on Pandora.

"We intend to be the go-to music destination," Pandora CEO Brian McAndrews said in a conference call on Monday afternoon to announce the acquisition. He added that the company's business will span "radio, on-demand and live music."

In addition to keeping pace with its competition, Pandora is buying Rdio's technology in order to keep up with the growing cost of doing business. In the third quarter of 2015, Pandora shelled out $211.3 million for all the songs its 78.1 million active users played. That's nearly as much as the $254.7 million that Pandora generated in advertising revenue for the quarter, which accounted for 82% of the company's total revenue.

More problematically for Pandora's bottom line, its advertising revenue only grew 31% year-over-year while its content acquisition costs soared 90%, and it failed to turn a profit after deducting operating expenses.

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