Pandora may soon launch an on-demand service

The company has been struggling to keep users on its radio-model, and was recently passed by Spotify

Financial trends and news by Steven Loeb
August 19, 2016 | Comments
Short URL: http://vator.tv/n/46da

Pandora was once the king of the music streaming space, but the company has started to lose its grip, and some users. So perhaps it was inevitable that it would eventually have to start changing up its model to keep up with increased competition. 

The company already went ads-free with the launch of Pandora One in 2009, but now it's going a step further, and is close to signing deals with record labels to launch an on-demand service, according to a report from the Wall Street Journal. 

The plan would cost $10 a month, and give users the ability to listen to whatever they want, whenever they want. Until now, Pandora has acted as a radio service, where users would pick a genre, or an artist, and Pandora would pick songs for them based on that theme.

The radio model served the company well at first, as Pandora became the largest music streaming service, as well as the only one to go public.

More recently, however, due to increased competition from on-demand services like Spotify and Apple Music, Pandora's fortune's started to turn. User numbers stagnated, while losses began to mount. 

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.

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 has grown so rapidly that it has now outpaced Pandora, crossing 100 million users at the end of June. 

While copying Spotify's business model might help Pandora fight to gain back some of those users, it won't help in another, more troubling department.

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 was seeing its losses increase. 

The issue comes down to royalties. In September of last year, then-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.

Launching an on-demand service meaning signing deals with major record companies, and that could add to the company's already high costs. 

Altering its business model isn't the first move Pandora has made to save itself. Earlier this year it completely revamped a major portion of its executive team, including its CFO and COO, while also bringing back co-founder, and former CEO, Tim Westergren, to lead the company. 

Right before that, reports came out that the company was shopping itself around, but once Westergren came on, he said, unequivocally that, no, the company isn't for sale. In fact, he hinted at the moves that Pandora is reportedly making in Pandora's Q216 Earnings Call in July.

"In Q2, we continued to execute on our plans while crossing several important milestones. We continue to have very productive negotiations with the three major labels, as well as with our partners in the independent label community," he said.

"Although these discussions are confidential, we believe they will result in our being able to deliver the product we want with the right business model, and that the investments we are making today will lead to win-win results as they are delivered, both for Pandora and the music industry as a whole."

This new on-demand service could be launched at early as next month, with initial roll out in the United States, then other English-speaking countries, before launching more broadly. 

Investors are reacting positively to this news, as shares of Pandora have risen 3.48 percent to $13.38 a share. 

A spokesperson Pandora would not comment on this report. 

(Image source: thezilla.com)

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