How Come No One Calls Out Pandora For False Promise Of Profitability?
from the celebrating-too-soon? dept
I’m a Pandora fan. I like the service and use it sometimes. However, I remember being surprised about a year ago when the company claimed that it was profitable. It had celebrated settling its royalty fight with the RIAA/SoundExchange by saying that the agreement allowed it to become profitable, but just doing some back of the envelope math, I couldn’t figure out where that profitability came from. Last year, when I saw someone from Pandora speak about how they had something like 100 salespeople all selling ads, the numbers still didn’t make that much sense. That many sales people is really expensive, and knowing the online ad business, I had trouble fitting the math in line as to how the company could possibly be profitable. Between the licensing, bandwidth and staff costs, unless they were getting insanely high ad rates, it just didn’t add up.
And, yet, there were various media reports insisting the company was profitable. TechCrunch, Mashable, Hypebot, News.com and others excitedly talked up how Pandora had gone from almost shutting down to profitability by the end of 2009, and all seemed to think it was a foregone conclusion that, as Pandora promised, it was going to be profitable in 2010.
Yet, on Friday, Pandora filed for a $100 million IPO, and the filings show that the company is still a long way from profitability. And, now, the company that talked up how profitable it was going to be in 2010 is claiming it might not really be profitable until the end of 2012 or later.
As expected, the SoundExchange agreement is not at all reasonable — representing a huge chunk of Pandora’s expenses — 45% of its revenue went to SoundExchange in the first 9 months of 2010. On top of that, Pandora is currently in another fight with ASCAP, who wants a bigger chunk than it was already getting as well. And, of course, Pandora is stuck in the US unless it can negotiate better rates around the globe. Basically, copyright costs are making it so that an otherwise useful service is unlikely to survive. You can read the full S-1 if you’d like to see more.
I do hope that Pandora figures out a way to survive, and continues to improve its service. However, I’m curious why so many folks in the press were happy to claim that the company was profitable, and cheered on the fact that it was going to be profitable for 2010, when the reality shows that it still has a long way to go before it’ll really be profitable.