Report: Pandora's Future Looks Iffy

Pandora, the pioneer in online radio, has a huge number of subscribers and brings in substantial advertising, but it isn’t making money. It’s 16 years into its existence and has yet to make a sustained profit.

Simply put, Pandora’s business model doesn’t work.

Media Life magazine reports tts very popularity works against it. The more songs played by subscribers, the higher its copyright fees go, eating into revenues. Advertising has not been able to keep up.

It’s also being challenged by newer entrants like Spotify.

When reports surfaced earlier this week that Pandora was on the block, it was hardly a surprise. Though analysts say Pandora still has potential, something has to change, and soon.

“Pandora has opted to invest heavily in ad sales infrastructure, as well as strategic investments, in order to pursue its long-term vision,” observes Mark Mulligan, managing director and analyst at MIDiA Research.

“Pandora’s business model has the potential to be much more profitable than Spotify’s, due to the different rates it gets from Soundexchange, while Spotify has to license directly from labels as it is fully on demand while Pandora is a semi-interactive radio service.”

Pandora needs to figure out how to make that happen.

While Pandora, Spotify and Apple Music are lumped together as direct competitors, they use very different technologies that offer very different user experiences.

Spotify and Apple Music allow users to curate playlists, assembling favorite songs and being able to play them as they choose. Pandora is a streaming service offering listeners radio channels based on their likes and dislikes.

“Although they are very different models, Wall Street views the streaming model as a single whole and thus Pandora lacks a growth story in a dynamic growth market.”

Pandora is attempting to address its technology gap. Last year it acquired Rdio, a service much like Spotify, for its on-demand capabilities, with the idea of integrating them into its offerings.