In the first blog in this two-part blog series, I discussed Pandora Media, the popular music-streaming site, and its difficulty to maintain profitability in today’s music-streaming industry.1 Despite its high number of users and annual revenue, the company is reportedly looking to sell.2 This decision comes in the face of an increasingly competitive industry, increased music licensing and royalty fees, and greater litigation expenses.3. As an alternative to selling, Pandora executives have said on the record that the company is considering switching its business model, changing from an ad-supported streaming site to an on-demand music site, similar to Spotify and Apple Music.4 In this blog post, I will discuss this proposed change to Pandora’s business model, and the economic and legal risks of such a change.
Switching to an on-demand music-streaming company has economic benefits for Pandora. For one, they will be able to negotiate the streaming licensing fees directly with labels instead of relying on judicial rulings as discussed in the first blog.5 Further, a move to this model will help Pandora increase revenue by making users pay subscription fees. Under its old model, Pandora was an ad-supported streaming site. Changing to a global, on-demand streaming site with multiple products offered represents a major shift.6 In order to make this change, Pandora purchased a smaller on-demand streaming program, Rdio, to begin accumulating the necessary assets.7 In an effort to double-down on this shift, Pandora also recently launched a partnership with the popular podcast “Serial.”8 In addition to the subscription fees, Pandora now has a broader market to access, which should help them continue to grow their customer base.
Although this switch brings increased potential revenue streams to Pandora, it is not without its risks. Analysts in the industry claim that these type of fourth quarter acquisitions “reek of desperation.”9 One risk is that Pandora will become just another on-demand streaming service, whereas before it held a unique position as the best site at providing “personalized” radio stations.10 Previously, Pandora was at the top of its industry as the best provider of these personalized stations. Is it worth a shift into an industry already crowded with competitors?
Given the increased legal costs associated with the music-streaming industry, it makes sense why Pandora is considering a switch in business models. However, this shift will not guarantee success or increased profitability, and Pandora should be wary. Pandora CEO wants Pandora to become the “go-to music destination” by offering radio, on-demand and live music.11 If they are able to accomplish this, the switch will likely be worth it. If not, they will become another player in an already crowded field.
Jacob Saslow, Music Licensing Issues Threaten Pandora’s Business Model, MBELR BLOG (Feb. 22, 2016), http://mbelr.org/music-licensing-issues-threaten-pandoras-business-model/. ↩
Leslie Picker & Ben Sisario, Pandora is Said to Have Held Talks About Selling Itself, N.Y. Times (Feb. 11, 2016), http://www.nytimes.com/2016/02/12/business/dealbook/pandora-is-said-to-have-held-talks-about-selling-itself.html?ref=dealbook&_r=1. ↩
John Paul Titlow, Why Pandora Isn’t Panicked About its 20% Royalty Rate Hike, Fast Company (Dec. 17, 2015, 7:30 AM), http://www.fastcompany.com/3054753/why-pandora-isnt-panicked-about-its-20-royalty-rate-hike. ↩
Picker & Sisario, supra note 2. ↩
Titlow, supra note 3. ↩
Claire Atkinson, Pandora Shares Slump as it Turns to On-Demand Streaming, N.Y. Post (Nov. 18, 2015, 1:24 AM), http://nypost.com/2015/11/18/pandora-shares-slump-as-it-turns-to-on-demand-streaming/. ↩
Titlow, supra note 3 ↩
Atkinson, supra note 6. ↩
Todd Haselton, Pandora to Mimic Spotify, Apple Music with on-demand music, Technobuffalo, (Nov. 17, 2015), http://www.technobuffalo.com/2015/11/17/pandora-to-mimic-spotify-apple-music-with-on-demand-music/. ↩
Latest posts by Jacob Saslow (see all)
- As Pandora’s Business Model Wanes, Company Considers Strategy Shift - April 19, 2016
- Music Licensing Issues Threaten Pandora’s Business Model - February 22, 2016
- Financial Impact of Daily Fantasy Sports: Part Two - December 1, 2015