Pandora Royalty Costs Are Growing Faster Than Revenue [CHART]
Thursday was a busy day for Pandora. CEO Joe Kennedy resigned just before reporting good
results for the last quarter. The company grew healthily, but still failed to turn a profit. Pandora has 65M active users and listening hours increased 52% over last year.
Pandora accounts for 77% of online radio
listening and 8% of total radio listening in the United States.
Revenue grew 54%to $125 million of which an impressive $80M came from mobile.
But as this Statista chart shows, Pandora has a big problem: the rising cost of royalties and licensing fees. In Q4,
content acquisition costs grew 59%, eating up 60%t of
the company’s total revenue.
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Pandora’s biggest problem isn’t the rising cost of royalties, their biggest problem is they have a bad business model. The Pandora business model is that the company cannot become sustainably profitable due to the fact that the more music its users listen to, the more it must pay out in royalties. The ad based business model is a failure, and after 9 years it is about time to acknowledge that failure and create a better business model; reducing artist royalties as they have suggested repeatedly is not the answer.