Why Pandora will be dead by 2018


PandoraRemember: the founder of Pandora — the guy who’s supposed to believe in this company the most — is dumping more than a million dollars of his own stock a month.  And yes, this is clearly documented.

Tim Westegren’s no dummy, even if he’s treating every musician and investor like one.  And they don’t call it insider trading for nothing: Westergren understands the vulnerabilities and nuances of internet radio better than anyone; he’s undoubtedly considered the long-term potential and competitive threats.

Like iTunes Radio, as potent a Pandora killer as they come.  And reason as any to lose faith in the long-term ‘business model’ that Pandora is trying to salvage.

Consider these fatal problems.

(1) Direct licensing is deadly poison to Pandora.  Yet it’s growing more popular, and becoming more possible than ever.

Apple signed direct deals with all the major labels for iTunes Radio, they aren’t beholden to government-mandated compulsory licensing rates and bad bureaucracy.  Which raises the question: what if Pandora were forced to do the same?

They’d probably end up paying a lot more, that’s what.  Which is exactly the opposite result Pandora is trying to accomplish.  And why Pandora is spending so much money and effort trying to lower rates on Capitol Hill.

Suddenly, this makes even less sense than before.  With iTunes Radio, Apple is paying full, directly-licensed fare (reportedly higher with advances and rev-sharing on ads), while Pandora pays the government rate.  So Congress should save little Pandora from Apple, because one can afford the raw materials and the other can’t?

(2) The reality: Apple can afford this, Pandora can’t.  Apple has a business model, Pandora doesn’t.

Apple can foot the bill, they can afford to overpay if it drives more iPad sales.  They can even afford to share low-rent advertising revenues and make this a break-even iTunes feature.  Sort of like the iTunes Store.

Pandora, on the other hand, remains committed to living on advertising and a small amount of subscription revenue.  This isn’t a loss leader for anything else, it’s all about monetizing internet radio directly.  And that’s difficult, especially for a company that remains heavily-resistant to a paid subscription model, or anything else that lowers their massive audience numbers.

Which means, the entire Pandora model is dependent on some government handout to survive.

(3) Apple’s radio service will be better.

Direct licensing means Apple won’t be hamstrung by the provisions of those established rates, like skip or playback restrictions.  Let’s see exactly how this pans out on iTunes Radio, though listeners will probably notice.

(4) Everything dies, especially on the internet.

Pandora clocks more than a billion listener hours a month; they account for nearly 8 percent of overall radio listening hours.  But everything dies eventually, especially on the internet.

Of course, users aren’t going to rush over to iTunes Radio, Pandora has too many established users; this isn’t Twitter #music.  But erosion happens.

(5) Even if Pandora’s listener base doubles overnight, they can’t afford it.

Again, this is a model that only works with a government handout, which would explain recent-quarter losses of nearly $30 million (over just three months).  But Pandora can only lobby and bribe Congress so much; they can only sue publishers and battle Sony/ATV until there needs to be a sustainable model underneath.

And on the publishing side, Sony/ATV has already squeezed Pandora as much as logically possible.  Other publishers, large and small, are next.  And the larger publishers have to power to severely reduce Pandora’s playable catalog if the deal doesn’t make sense.

Which means it’s not just Apple that’s going to kill Pandora, it’s the entire idea that billions of ad-supported streaming hours somehow makes business sense.  It doesn’t right now, and it won’t in five years.

Pandora: Dead by 2018.

List of Killers: Apple, publishers, Congress, consumers, Wall Street, Pandora executives.

–Paul Resnikoff, Digital Music News. Printed with permission.

See the original post here