Pandora’s punt on the paid streaming market has been given a fresh injection of cash, though the signs aren’t great for the company.
Struggling to keep pace with Spotify, and seeing rivals such as Apple Music, YouTube, Google and Amazon aggressively target a place at the top table, Pandora is in a tricky spot.
The company, which started as a radio streaming operation before stretching into the world now dominated by Spotify, is available in Australia, New Zealand and the US.
Money to be made
It’s far from a global behemoth, however. Even within that relatively limited geographical reach, it struggles to make headway.
Around 20pc of all global music streaming subscribers that pay for a service come from those three countries, according to Bloomberg, yet Pandora has yet to crack the code to make a sustainable profit.
However, that might be about to change, as private equity firm KKR & Co has made an investment of $150m. This funding will be secured should Pandora fail to find a buyer, which remains a possibility.
In its most recently released financials, revenues of $316m were just off what analysts were expecting. Subscriber numbers grew, with more than 500,000 trial customers for its premium model.
Should a sale not come to fruition, the funding will help Pandora to bridge the gap between the launch of its paid, premium streaming –released in March of this year – and when that assumed cash flow starts to come in over the next 12 months.
Pinning hopes on paid subscribers could be a risky strategy, however, given how other companies in the streaming environment are performing.
Success for Spotify
At this stage, Spotify – the biggest player in this industry by far – could be the only company to secure enough paid subscribers to make its operation work.
Spotify is on an upward trend, recently clocking up 50m premium customers. It reached the 40m mark last September, and this was at 30m six months before that.
The 30m subscriber figure was nowhere near enough to turn those red digits black at the company, with an 80pc rise in revenues during 2015 (to €2bn) still resulting in a €173m loss. However, adding 66pc more subscribers since then could well change this.
Spotify recently acquired Sonalytic, echoing its 2016 move to snap up Dublin music discovery start-up Soundwave. Sonalytic, much like Soundwave, uses its software to identify songs and other forms of audio, as well as track certain material. Considering how the copyright situation operates in streaming, the move makes sense.
Acquisitions and a push for premium is Spotify’s model and it might just work.
A strong balance sheet
Pandora has snapped up interesting companies of its own in recent years, including Ticketfly, a Ticketmaster-type site, for $450m in 2015.
With that premium model still in its infancy and its chosen markets already entertaining every big rival you could think of, making headway could prove difficult for Pandora. That’s why major sums of funding are needed.
“A strong balance sheet gives us the ability to accelerate growth investments when appropriate and to compete aggressively in a rapidly changing, complex market,” said Naveen Chopra, CFO of Pandora.