Struggling Pandora turns to former CEO Tim Westergren

The company, which has seen subscribers dip and losses mount, also appointed a new CFO, COO and CPO

Financial trends and news by Steven Loeb
March 28, 2016
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This is an interesting time for Pandora. While it remains the most widely used streaming service out there, with over 80 million listeners, and as streaming is starting to take a bigger piece of the revenue pie than ever before, the company is still struggling, falling deeper into the red while also losing subscribers. In fact, the company's entire future seems to be up in the air right now.

Wherever the company winds up going from here, whether it changes its business model or it winds up selling itself, it has turned to new leadership to get it there. Rather, make that old leadership.

Pandora has announced the return of co-founder, and former CEO, Tim Westergren.

Westergren had been Pandora’s Chief Executive Officer and President from May 2002 to July 2004, before giving up the job to Joe Kennedy, who led the company through its highly successful IPO. Kennedy stepped down in 2013 and was then replaced by Brian McAndrews.

McAndrews, it was revealed, will be leaving Pandora .

Westergren, meanwhile, has stayed with Pandora in some capacity this entire time, serving as Chief Strategy Officer from 2004 to 2014, and remaining on the company's board of directors even after he left that position.

In addition to Westergren's return, Pandora also announced three new executives.

Mike Herring was named as the company's President and Chief Financial Officer. His job will be to monetize Pandora’s core business. It has a new Chief Operating Officer in Sara Clemens, who will be tasked with growing and scaling the business and operating new ventures. 

Finally, Pandora named Chris Phillips as its new Chief Product Officer, putting him in charge of product, engineering and marketing.

Pandora's struggles

Pandora, like Twitter, obviously believes that bringing back the founder's vision will help put the company back on track. And, like Twitter, the company has some pretty big hurdles to overcome if it wants to turn things around. 

In it's most recent quarterly earnings report, the company posted $336.2 million in revenue, an increase of 25 percent year-to-year, beating expectations of $331.83 million. Earnings per share were $0.04 earnings per share, lower than the $0.07 that Wall Street had been anticipating.

While that was good news, there were two important figures in this earnings report, both of which may point to why Pandora is struggling.

First, for the full year 2015 the company had $1.2 billion in revenue, up from $920.8 million in 2014. However it still managed a net loss of $170 million for the year, up from a net loss of $30 million the year prior. Despite taking in a very healthy amount of revenue, Pandora is still in the red.

The other important stat are its user numbers. For 2015, Pandora's active listeners were 81.1 million at the end of the fourth quarter of 2015, compared to 81.5 million for the same period of the prior year, a loss of 400,000 users. So the company is losing money, and losing users.

The problem with decreasing user numbers is easy to figure out; there is a lot of competition in the music streaming space these days, and there are only so many ears and only so many hours to listen. Apple Music, which only launched last year, has at least 15 million users, and Spotify is growing so rapidly that it will likely become bigger than Pandora very soon, if it hasn't already. 

The other problem, its inability to remain profitable, has been an issue for Pandora for its entire history, and is just a fundamental flaw with its business model, where it made the majority of its revenue in 2015, $732 million, from advertising.

The more songs that listeners access, the more ads Pandora will sell, and the more money the company will get. That obviously works in Pandora's favor, and allows them to offer the service to its users for free. But, at the same time, the more songs that users play, the more Pandora has to pay out in royalty fees. And that is causing the company some big headaches. 

In September of last year, CEO Brian McAndrews revealed that Pandora had paid out a total of $1.5 billion in royalties, and $500 million through the first nine months of 2015 alone.

These ongoing problems are good reasons that Pandora might find that selling is its best option, but it could also try turning itself around by changing the way it makes money.

The company does have a subscription service that it offers, which is began building out more in late 2015. However it should be noted that Spotify, one of Pandora's biggest competitors, makes its money from a subscription service, and it too is in the red because of royalty fees.

Pandora is also venturing out into the ticketing business, having acquired ticket distribution service Ticketfly for $450 million in cash and stock last year. Running Ticketfly will one of Clemens' responsibilities going forward. 

In a statement, Westergren laid out his commitment to Pandora's future, which would seem to take a potential sale off the table.

I am incredibly excited about the future of Pandora. We're on the cusp of realizing an extraordinary vision: fundamentally changing the way listeners discover and enjoy music, and the way artists build and sustain their careers," he said.

We are pursuing a once-in-a-generation opportunity to create a massive, vibrant music marketplace. We have the audience, the technology infrastructure, the monetization engine and most importantly the right team with the passion and commitment to do it. I’m 100 percent committed to Pandora’s growth strategy, as is our executive team and Board.”

Investors, however, are less enthusiastic about this move, sending Pandora's stock down over 9 percent to $9.90 a share. 

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