Bad News for Pandora in 2016

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Pandora, the U.S. based music streaming service, has enjoyed great successes over the past decade since its inception. As a pioneer in its particular niche, it enjoyed the advantages of being first out of the gates with year-on-year profitability and user-base expansions.

Recently, however, it seems that a fly must have fallen into the ointment because things aren’t looking as rosy for them as they once did. Their active listener base plummeted to below 78 million people for the very first time in over two years, and to make matters worse this happened while it recorded net losses in excess of a whopping $250 million for this year.

A $250M Loss in 2016 And Its Listeners Have Fell Again

Their most recent quarterly financial reports tell the full story of their current situation.

Pandora’s user base experienced a second consecutive quarterly drop when compared with last year’s figures. It attracted 77.9 million active listeners, down from 78.1 million in the same quarter last year. To put it in perspective, Spotify, its main industry rival, grew its global user base by approximately 20 million people in the same time span to stand at a towering total of over 100 million listeners.

On a brighter note, Pandora realized $351 million in revenue, a 13% increase; $273 million in advertising revenue, a 7% increase; 5.4 billion listener hours, a 5% increase; in addition to $22.1 million in ticketing service revenue, a 25% increase although this is overwhelmed by the $450 million it paid to acquire ticketing company Ticketfly back in October of last year.

That’s where the good news ends. Since the beginning of the year 2012, Pandora has cumulatively hemorrhaged more than half a billion dollars in net losses. The first nine months of this year has seen it lose $253 million with a $61 billion net loss in the third quarter of 2016 alone. How did it come to this?

One of the reasons is the direct licensing agreements the company entered with labels and publishers with regard to its new range of product offers. The deals entailed advance payments on minimum guarantee deals with rights holders which raised their content acquisition costs by $93.3 million in Q3.

A $90 million credit facility loan taken ostensibly to enhance their working capital position put further strain on their already precarious position.

Additionally, the furor among its user base created by their Facebook and Twitter comments in support of the Black Lives Matter movement earlier this year cost them a lot of customers. Aside from offending the conservative segments of their client base, a lot of neutrals and liberals alike found their comments to be out of place and short-sighted for a company of their magnitude.

Whatever the root cause of Pandora’s tribulations, the fact remains that they face an uncertain future, and they need to rethink quite a few things going forward.

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