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.
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Filed Under: ipo, journalism, profitability
Companies: pandora
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This was so expected ...
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Re: This was so expected ...
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Re: Re: This was so expected ...
Would they be thrilled if using those raw materials actually benefited the makers of said raw materials as much, if not more, as it benefits Pandora?
Would they be thrilled if those same raw materials cost a fraction of the cost if "on the internet" were removed from their business?
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Re: Re: Re: This was so expected ...
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Oh! I didn't realize that Pandora only pays for each song once! That makes it much more reasonable! I was under the impression that they had to pay per song, per stream! You can easily see why that would seem to be ridiculous, I'm sure. Now that I know that they only pay for each different song once, it makes much more sense! I don't understand why those big whiners are complaining about having to pay for each song once. Talk about ungrateful!
Thanks for setting me straight! :)
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Re: Re: Re: Re: Re: This was so expected ...
Are you intentionally trying to misunderstand?
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Are you saying that Pandora *does* pay for each use of an infinite good? I sure hope not, because that would indicate that you offered up information that had no relevance on the situation (though, I'm sure it wasn't to intentionally cloud the issue!) *and* that Pandora is being overcharged.
I'm looking forward to your clarification. Thanks again! :)
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Instead of waiting for clarification. Wanna start a CC, and FMA style music service to compete with them. Pandora goes under, we reign supreme :)
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I also think that anyone using the music for personal use should give 45% of their GROSS income to the copyright holder.
After all, we should be so lucky to get such a valuable raw material so cheap!
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Re: Re: Re: This was so expected ...
The point is that the music is their raw materials. Without those materials, pandora is, well, an empty box. It would be like the sound of silence with the volume turned down.
Pandora could choose to work only with artists who don't have label or publishing deals, and who specifically release their work through CC licensing, but then again, would anyone actually tune in? Probably very few people. Pandora understands what is required to make their business go, and pays for the rights as they see fit.
It is against the rights holder's best interests to take them out of business. But it is also not in their best interest to grant license cheaply either.
So be as sarcastic as you like, but business is business.
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Re: Re: Re: Re: This was so expected ...
As someone already stated, if that was true the labels could easily cut out the "middle man" and stream the music themselves, and get 100% of the profits.
They don't because Pandora adds value.
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Probably yes, Jamendo seems to be doing pretty well and so do Magnatune.
Pandora should die, since they only have that copycrap music there.
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I'm sure if Pandora could find enough content that they could stream that was not owned by the record labels, they would be happy to not sign deals with the labels. Unfortunately, most of the content over the past 50 years has been taken from the artists by the labels.
Yes, this content is what the consumers want. However, they clearly want better, more convenient access to it as well. Plastic disks don't meet the consumer need anymore. Pandora helps fill this product gap. Unfortunately, the labels are pricing the music so high that either Pandora cannot keep enough profit to survive, or it needs to charge such a high price that it cannot sell anything at all.
Nobody is saying that the record labels CANNOT do this. It is, however, extremely short-sighted. The labels complain about piracy but overprice music for the services that could best combat it. Without services like this, consumers will not turn to the plastic disk that they don't want. They will turn to piracy - not because they don't want to pay for music, but because they cannot purchase the convenience they desire.
Lots of studies and working businesses (umm...Netflix anyone) have shown that people will pay REASONABLE prices and go to legitimate services when their needs are being met. Hollywood and the record labels just seem to think that killing these services by overpricing their deals will somehow make consumers do what they want. They are wrong - the market tells the business what to do, not the other way around - regardless of the monopoly you control.
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Re: Re: This was so expected ...
I also think that anyone using the music for personal use should give 45% of their GROSS income to the copyright holder.
After all, we should be so lucky to get such a valuable raw material so cheap!
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Where did their #'s come from?
I'm a big fan of Pandora, and also of Slacker who I'm sure isn't profitable yet either - I'm hoping they survive, but if not, well then I'll go back to being an immoral kitten drowning piratical downloader hell-bent on world destruction via the mechanism of bittorent. Thanks RIAA & ASCAP, I was just starting to like my kitten too.
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Profitable
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Re: Profitable
No. They didn't. There's an operating profit, but that's not the same thing... They're not quite as close to profitability as they want you to believe.
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Re: Re: Profitable
operating profit != real profit
copyright laws != real laws
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Quote:
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Of course Apple probably wants to kill Pandora.
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Many salespoeple in the U.S. are 100% commission.
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Paid Service
Given that, does anyone know the margin between the revanue from adds compared to the subscription? Obviously the amount of time listened would have a huge effect, so assume ~50 hours a month.
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Re: Paid Service
86% adverts
14% subs
[page 49 of the S-1]
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Let the Content Groups do it on their own.
The fact that they have not done this yet, seems to be a pretty good sign they have an idea of what the true value of each part is and are just too greedy to think long term and what the best solution is for everybody.
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Re: Let the Content Groups do it on their own.
That's not all that surprising. They are record labels, not application builders, marketing firms, etc.
It's actually pretty funny. Record labels are middle-men that claim they add value to the artists they support (loosely used) because they can add their expertise in recording and distribution to the art created by the musicians. Then, they completely rule out the idea that a company like Pandora can be a middle-man for them adding the valuable expertise in web development, ad sales, and marketing - they just rule out the idea that another company can add value to their product.
I think they are telling us that the middle-men are totally useless and should be actively routed around.
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It's not labels vs pandora anymore, that marketing angle was over long ago.
At this point most tech writers are perpetuating the anti-artist/label myths that the music business is dead, as mocked in a recent episode of Portlandia. The industry is burgeoning and these rates ensure a revenue stream for artists. I have trouble reading articles that blatantly leave that portion out of their piece. Fans should know how this works. Stop keeping them in the dark.
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