As Pandora Media (NYSE: P) struggles with profitability, the company is looking beyond music for subscription success and sustainability, reports The Motley Fool. Internet radio station Pandora has added non-music audio content including two popular podcasts: Ira Glass’s This American Life and Serial hosted by Sarah Koenig, which have already attracted 10 million listeners.
According to The Motley Fool, Westergren sees a big opportunity to provide non-music audio content.
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“Research confirms that listeners would like to hear more non-music content but are currently frustrated by discovery. Pandora’s ability to surface relevant content to a scaled and engaged audience uniquely positions us to solve this problem. Additionally, listeners had confirmed that content offered by Pandora is viewed as more legitimate than unknown sources, increasing both their appetite and willingness to engage with new genres on the platform,” Westergren said.
One of the problems with Pandora’s current model is that it has 78.1 million total listeners at the end of the second quarter of 2016 but only 3.3 million paying subscribers. It has also been operating in the red for quite some time, prompting founder Tim Westergren to return to the company earlier this year, replacing then-CEO Brian McAndrews.
While second quarter 2016 financials show some improvement under Westergren’s leadership, it may not be enough to sustain the company long-term. Here are revenue highlights from their Q2 financial report:
- Total consolidated revenue was $343.0 million, a 20 percent increase year-over-year.
- Advertising revenue was $265.1 million, a 15 percent increase year-over-year.
- Ticketing service revenue was $22.8 million, a 20 percent increase year-over-year, due to Pandora’s acquisition of Ticketfly last October.
- Subscription revenue was $55.1 million, remaining relatively flat year-over-year.
While all revenue categories were up compared to the second quarter of 2015, the company’s costs remained high, including content acquisition costs of $176.6 million. The company’s net loss was $76.3 million for the second quarter of 2016, compared to net losses of $16.0 million this time last year and $57.4 million for the first quarter of 2016.
How can this new non-music audio content strategy propel Pandora forward? First, the new content may help Pandora attract a unique pool of listeners it has not appealed to previously. Drawing more listeners using the free, ad-supported service will also create more advertising spots for Pandora, who relies heavily on ad revenue (77 percent of its total revenue). These new listeners may also be potential listeners or subscribers to the streaming service and tiered subscription options Pandora hopes to roll out soon.
There is also the potential that acquisition and licensing costs for non-music audio content will be less, lowering Pandora’s expenses. Pandora can content directly with contract creators, which could potentially lower its overall costs. This will be true particularly if Apple gets its way and the royalty payout structure is changed, costing freemium companies like Pandora to spend more for the same product.
As we’ve said before, Pandora is in trouble and cannot sustain its current model for much longer without drastic change. The first necessary change was replacing its CEO. Under Westergren’s leadership, Pandora has begun steering the ship in a new direction – focusing on new streaming services, subscription tiers, and now non-music audio content. It will take time for these changes to take hold, and for the initial start-up costs of these ventures to level out, but Pandora is moving in the right direction.
In addition to these changes, Pandora continues to lean on things it does well – growing advertising revenue and now ticketing service revenue, both of which are growing in the double digits. These are all positive changes, but only time will tell if they will be enough to get Pandora back in the black. And, of course, there is always a chance Apple will succeed in changing how music royalty payments are made, which could financially undo all of the positive changes Pandora is currently striving for.