Mobile users are logging onto Pandora in record numbers, but the streaming-radio company is having trouble finding enough advertisers, which may jeopardize its ability to continue to provide unlimited free music.
Pandora, which offers listeners a choice of “radio stations” based on searches for favorite music, has never been profitable. The Oakland, Calf.-based company has lost $92 million since 2000, and its costs are growing because of increasing music licensing fees.
While supply is costing Pandora more money, demand is rising as mobile device use goes up. The company says most of its listeners are people with smartphones and tablets. Only 12 percent of Pandora’s listening public used their mobile devices to listen to tunes just two years ago, but now 60 percent of Pandora visitors are using their phones or tablets.
However, Pandora CEO Joe Kennedy says there is a limited amount of advertisers available for mobile markets, despite their increasing popularity. This means Pandora is offering music for free to the public, but isn’t finding the advertisers it needs to keep up licensing deals that makes this free music popular.
While Pandora is concerned about attracting more advertisers to its mobile platforms, it still earns revenue through its current advertising, suggesting it may start to become more profitable if more advertisers are attracted. According to Bloomberg, Pandora made nearly $120 million last year, or 87 percent of its sales, from advertising.
In addition, the company made another $18.4 million from people who paid for an ad-free version of Pandora and through other revenue services.
Premier brands such as Budweiser, Taco Bell and the History Channel have all signed up for advertising on Pandora, but its travails may indicate a lag that companies must weather as they begin to add or transition into the mobile sector.
Mobile advertising means big business — according to New York research firm EMarketer, marketers will spend $2.55 billion on mobile ads in 2014, more than double the money spent this year. If Pandora can attract even a few more clients to advertise on its free platform, that money may go a long way toward edging the company towards profitability.
But Pandora and other music streaming services will soon face an additional challenge in the form of online cloud services, such as those offered by Google and Apple. Those services allow users to store their own music and files on companies’ cloud servers and then stream them at will. If users turn to cloud systems for their own music, sites such as Pandora may suffer a loss of traffic and advertisers.
But all customers might not be interested in streaming from cloud servers. Many people use Pandora and other online streaming-music sites so they can enjoy a wide variety of music without having to pay extra for downloads. Others may not want the inconvenience of sorting through thousands of downloaded songs when all they want to do is hear a few tunes from their favorite artists.
Services like Pandora may have to wait until advertisers begin to understand the tremendous growth of music services for mobile device use, especially since streaming media on phones has only begun to be a possibility with the increasingly robust specs of smartphones. When that happens, Pandora may see its revenues grow, but must endure some transitional pains in the meanwhile.