As Pandora Goes Public, How Come No One Is Pointing Out That It Misled The Press About Being Profitable?
from the the-misleading-state-of-startups dept
We mentioned this earlier, but with Pandora scheduled to go public this week, it seems to bear repeating. Over the last couple of years, Pandora, which is a service that I’m a fan of, has repeatedly told the press that it is profitable. You can see various reports on its profitability from TechCrunch, Mashable, Hypebot and News.com — all generally good publications that don’t get easily tricked. Yet, when the company filed to go public, it became clear that it wasn’t profitable. Not only that, but it wasn’t close to profitable and might never be profitable.
This really shouldn’t be a surprise. If you knew anything about typical ad rates and the costs associated with (a) streaming bandwidth and (b) the licensing details for streaming music, the math really didn’t add up. And it’s just now, on the eve of what is likely to be a very successful IPO, that more people are realizing that the company is basically a money losing machine, and that its revenue doesn’t cover its basic expenses:
There is a fundamental problem with Pandora Media’s business model: the more its product is used, the more money it loses. That’s the opposite of what makes a company viable in the long term. Nevertheless, the online music service is asking public shareholders to finance its growth so it can draw more listeners, increase usage and … lose more money, presumably.
This is unfortunate on multiple levels. The biggest issue here is, not surprisingly, the ridiculously high costs of the licenses that Pandora has to pay. Even though plenty of folks have found that Pandora is an excellent source to discover new music, and has turned many people (myself included) on to new artists we’d never have heard of otherwise, the recording industry still demanded ridiculously high royalty rates, which it eventually extracted from Pandora. Oddly, at the time of the agreement, Pandora cheered on the deal saying that the rates made sense (and then used the deal to raise a lot more money). But with the details showing that the costs are keeping the site unprofitable, and may fundamentally make it so that the site can’t be profitable, shouldn’t we be questioning how reasonable those rates are? And, while we’re at it, can we question the earlier claims of profitability from the company to the press? Lots of private startups make this sort of claim to the press, and they never seem to get called on it, which is why it’s unfortunate that no one seems to have challenged Pandora on its claims.