How Is Pandora Doing? Well, It's Tough Out There

On Monday, the Internet radio pioneer Pandora, one of the oldest music tech companies still humming, announced its first-quarter financial results. Like most of its brethren, the company both makes and loses a lot of money — it reported $132 million in net losses this quarter alone, but also announced a new $150 million round of financing and a shakeup of its board. Oh, and that financing requires the company explore all feasible avenues to sell itself off before receiving the cash.

Why do we care about the streaming music company's financial dealings? It appears that the company's late introduction (it was announced last December, after years of speculation) of its on-demand alternative to Spotify and Apple Music, called Pandora Premium, has caused some problems. (Pandora also offers a cheaper subscription, Pandora Plus, that is a slightly beefed up and ad-free version of its radio service.) Pandora created the competitor from the constituent parts of the defunct streaming service Rdio, which Pandora purchased in late 2015.

The project of re-engineering Rdio into Pandora Premium took over a year to complete, during which it lost ground to its biggest competitors; the number of "active users" of the company's original radio service Pandora tallied this quarter was 76.7 million, down three million from the same period last year. The company doesn't break out subscriber numbers service-by-service, but reports 3.93 million of them in total. For its part, Spotify's most recent subscriber count was 50 million (with 50 million using its free service), while Apple Music's stands at 20 million. Just two months after launching, Pandora Premium is available in only a fraction of the markets that the other two are. The company did not immediately respond to a question about whether it planned to expand globally any time soon, though it does say marketing costs are expected to remain flat this year, which suggests that no, they aren't.

So Pandora needed some "band-aid" funds, which it has found — and which have arrived bundled with a top-level restructuring.

"Having secured a significant financial commitment from KKR to strengthen [Pandora's] balance sheet, we have positioned [Pandora] to evaluate any potential strategic alternatives, including a sale, in the 30 days before the financing is set to close," says James Feuille, who is resigning from Pandora's board of directors just as Richard Sarnoff, an executive with KKR, joins it. Feuille has been with the company since 2005, according to Forbes, and was instrumental in convincing the company to abandon its plans, early on, to charge listeners a subscription fee. "We are excited to support the long-term growth of Pandora with this investment," said Sarnoff. KKR's investment, which can be increased to $250 million, comes in the form of a purchase of "Series A preferred stock," which essentially bumps them to the top of the investor pile.

In addition to Feuille's exit, Tim Leiweke, the former president and CEO of Coachella owner AEG (whose founder has come under fire recently for his political donations), will be joining the company as an independent director and advisor who will help Pandora to locate and secure new board members.

Pandora spent much of 2016 repairing its relationships with the recording industry, which it had an infamously contentious relationship because it used every possible means to lower its royalty costs (including a failed gambit at purchasing a South Dakota radio station), in order to secure the deals it needed to launch Pandora Premium, a subscription service that leans on its ease-of-use (like Rdio before it) and automated curation (as Spotify has increasingly done).

"Lots of rings to kiss," founder and CEO Tim Westergren told Billboard last year. His glad-handing couldn't have come at a better time; record labels were very, very open to licensing their catalogs in order to spread their bets wide in a new digital economy (a strategy that is going well). The increased cost of paying for that music, however, contributed to a nearly $16 million increase in licensing fees over the same period last year.

The massive expense of buying Rdio, rejiggering it, paying for the music required to launch it, then the marketing required to make people aware that it exists means Pandora is all but locked into competing with the music streaming market leaders. It may prove to be a fatal move — Pandora was once — still is, really — synonymous with "radio on the Internet."

The streaming market hasn't yet reached full maturity, but it's certainly come a long way from its beginnings as a lightly threatening business model to the principal generator of revenue for the recording industry worldwide. Now Pandora focuses on becoming one of the ships benefiting from that rising tide.

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