Pandora Files For IPO
It is now official. Internet Radio music service Pandora has filed paperwork with the SEC outlining their intentions to go public later this year. It has been speculated for quite some time that Pandora would make such a move and now it is a reality.
The company stated on their SEC filing that they intend to raise $100 million. That amount can change as bankers must now see what kind of interest a Pandora IPO will bring to the street. If there is enough interest the numbers could change substantially.
Morgan Stanley and JP Morgan, companies familiar to Sirius XM investors, will be the bookrunning managers charged with placing an ultimate value on the IPO and pricing it.
Pandora boasts over 80 million registered users and “50 percent share of all Internet radio listening time among the top 20 stations and networks in the United States.” The company had over $90 million in revenue through the first three quarters of 2010 but has yet to make a profit. It is possible that they turn a profit for 2010, but the company warns that they anticipate operating at a loss until 2012.
What many who follow Sirius XM fail to realize is that Pandora and other Internet radio services are shifting to a subscription model more now than ever before. Recent decisions by Last.FM to forgo the free service show that free/subscription models of Pandora and Slacker hold far more potential than a pure ad based service. An annual subscription to Pandora is about $36.
Internet royalty rates and high data usage are two challenges that Internet radio faces. The royalty rates can be overcome because the record labels renegotiated terms which have Pandora paying a per song rate or 25% of revenue, whichever is greater. High data usage is not as big a problem as most would have you believe. The typical Pandora user stays well below the 2.0 GB allotted by carriers such as AT&T.
The fact of the matter is, Pandora will see a cash infusion this year that will ensure they remain a viable competitor to Sirius XM in the future. The most likely timing of Pandora’s IPO could coincide with Sirius XM’s release of Satellite Radio 2.0. Depending on what Satellite Radio 2.0 entails, it could apply a lot of pressure to Pandora at a time they are seeking investors.
Position – Long Sirius XM Radio
Subscription model loaded with advertising. This seems like somewhere in no mans land between Sirius XM and Terrestrial radio. This will reinforce Sirius XM’s model and will push Pandora users to take a good luck at what they are paying for compared to what Sirius offers and it will be game over for them. This IPO is a desperate attempt to stay in business. Pure internet radio is a terrible business and will never see the light of day as any real threat in the car as a pure install sub.
good “look” , not luck.., but then again Good Luck to them, they’ll need it.
Pandora subscribers don’t see or hear ads, only users of the free streaming service do.
how many paying subs do thy have ?
Do you know how many subscribers does Pandora have ?
<2,000,000 but I don't know the exact number. I also am not aware of their growth rate.
Epic failure if mandatory costs to listen to Pandora.
O.K. lets get this over with. Since everyone is merging or buying someone out it’s time for the Liberty guys to open up their wallets. Either someone at sirius/xm creates an internet service like Pandora,Slacker,etc.,or do like google and facebook are talking about doing to twitter and buy it. Maybe, 2.0 will be the answer or at least buy some time to see which one of these services are the best. By then, maybe the smoke will have cleared and Malone and Mel might be in a better position to spend to win. From listening to the Liberty guys on CNBC they have done very well with their sirius/xm investment. Why not expand a good thing and close the door a little tighter on the competition?
Pandora has so many users simply because it is free. While I have not seen any age demographics, I believe the majority of their users are very young, and without discretionary income available to pay for this service. Advertisers will be reluctant to spend money advertising with a radio service that has has listeners with limited income, limited usage for their listeners due to data stream limitations (2 gigabites with AT&T), and limited access for their listeners since this service is not available in automobiles, or home units at this time.
It is a very questionable business model at this time with to many restrictions. Hey, 80 million users seems like a good number, but giving something away for free is easy. Building value for convincing customers and advertisers to pay for a service is another story.
80 million users will simply switch to one of the many other free music services out there.
This news will have little impact on the highly anticipated cc and the anticipated surge in siri stock price, coming just 48 hours from now.
I listen to Pandora in my vehicle all the time. I unplug my SkyDock from the aux in of my head unit and plug in my Droid. Bingo, instant Pandora equipped Dodge Ram 2500. What’s more, Pandora is absolutely available in home units as is Slacker. My Sony BluRay player has a Pandora and Slacker app and I blast it through my home theater system. Sounds great. My Roku box does Pandora and does my Vizio BluRay player.
My Apple TV will as well as soon as Apple makes apps available on it. I’ve never done it, but the iPhone and iPad Pandora apps can been streamed to any device with an Airport Express via AirPlay. My Airport Express units are plugged in to iHome radios so I just dock an iPod and play it directly. There are TVs with Pandora apps built in to the TV itself. Pandora (and Slacker) are available all over the place.
I cared a lot less about all of these Pandora apps when DirecTV offered XM on their music channels. Sonic Tap played a small roll in me looking for alternatives. To this point I have only canceled XM online but as more and more devices bring me more options that may change in the future.
Let us pay attention to facts. It has been ten years since Pandora has been around… and they produced so far zero profit and are about ninety million in debt. With 80 million registrations rather than users they are still deep in debt. Even if the number of registrations doubles, which is impossible because there are not as many potential listeners, their profit margins would be laughable. If you read all the warnings to potential IPO buyers in the pamphlet, Pandora is not certain at all if it will make profit for another two years, if any. To compete with siri on a subscription basis, they will have to get much more debt in addition to $100M underwriting minus tons of fees and expenses to the fat bankers in order to be able to bring real talent and contracts other than music. In my view the only avenue where they have a chance to compete is internet … but NOT in the auto, plane or at sea or any other vehicle. Those who have been in these discussions know why. SXMinvestor is right by saying that they are in “no man’s land”. They will have to s***t or get off the pot. The only model that works is siri’s subscription model. This means Pandora will have to move massively to subscription business. This means they need a lot of money to become competitive with siri. They also need time that they DO NOT have because siri is profitable now and will be very lucrative tomorrow and Pandora may not ever be. The situation reminds me of competition between Sirius and XM before merger with their bidding war for the talent. One of them had to go under; instead they salvaged each other and us by merging and are and will be prospering. It would be a miracle for Pandora to be able to compete with siri’s deep pockets. I believe Pandora’s situation is obvious – either bankruptcy or buy out, whichever comes first. Thank you Pandora for opening up your books! Now we know your true story and the hype behind it. Please hang in until siri adjusts its prices. Then you may go.
VI….
Pandora launched in 2005. They are in year 6 now.
In 2010 the service generated $10 million per month in revenue. Sirius XM generates $5 million a month in advertising revenue.
let’s assume that Pandora is getting $5 million in ad revenue each month (matching SIRI). In my opinion this is very unlikely, but if that is the case, it means they are getting $5 million per month from subscriptions. In my opinion over 75% of their revenue will be from subscriptions. The shift happened when they shifted to a more sub based model over a year ago. It is why they are almost profitable now.
People love to call Pandora “free”, but I have been talking about their shift to subscription for well over a year now. People don’t seem to see it. The new royalty deal is conducive to a subscription model. If subscription revenue can outpace the per song cost, the company only needs to shell out 25% of revenue. This leaves them with 75% for themselves. Sirius XM shells out as much as 40% of their revenue to some of the OEM’s.
Spencer……your opinion is wrong…..This is Straight from the IPO
“The basic Pandora service is free, with most of its revenue coming from advertising, just like traditional radio stations. Users can pay more to get rid of the ads, enable unlimited listening time and more “skips” and receive higher-quality songs. Most people apparently are willing tolerate the ads. The IPO documents said 86 percent of Pandora’s revenue came from advertising in its fiscal year just completed Jan. 31″
That was my impression also. A few individurals who have lost almost $100 million would like to recoup their investment. Their own independent auditor who was hired to examine thier books says they are, I believe the term was “sloppy” and they need to “clean up their bookkeeping”. I lost a lot of money a few years back investing in a company that everybody later discovered had bookkeeping errors. Can you say ENRON? A public offering is a quick way for a few insiders to get their money back and head for the hills. I’m counted as one of their “80 million subscribers” because I built an account about a month ago, tried to listen, but was disappointed with the content, and the fact that you can’t hit the “don’t like” button but about 4 times until you see a message that says something like “due to agreements with our vendors, you just maxxed out your use of the REJECT button. Get over it and listen to songs you don’t like.” If you have the service “on” and quit changing stations, etc. you will see a message warning you that they are about to shut off your connection, because it “costs them money” to play songs for you to listen to, and “if you aren’t listening, you need to log off.”
Pandra free account:
6 skips per hour
40 hours per month
Interact with software every 2 hours
Pandora paid account:
Unlimited skips
Unlimited listening
Interact with software every 5 hours
SiriusXM online:
No free option
No skip button at all
Interact with software every 2 hours
Your thoughts on Pandora’s filing, investors, losses and anything else business related are nothing more than wild, biased speculation.
The reality is only 13.8% of their revenue is from Subscriptions and they state that basically they don’t expect that to change.
For the nine months ended October 31, 2010, we derived 86.4% of our revenue from the sale of advertising and expect to continue to derive a substantial majority of our revenue from the sale of advertising in the future. Our ability to attract and retain advertisers, and ultimately to generate advertising revenue, depends on a number of factors.
“Sirius XM shells out as much as 40% of their revenue to some of the OEM’s.”
See, this is a huge point. Pandora doesn’t rely on these types of relationships. iPhone, Android, WebOS, Windows Phone, Apple TV and Roku these are all platforms that are free to play on once apps are developed. While Sirius has these same possibilities to deliver content the price of an online only subscription is $13 with a royalty add on. That’s not competitive.
Sirius will move toward Pandora and Slacker on Internet pricing and Pandora and Slacker will move toward Sirius on content. Given the number of devices in the wild there is plenty of room for all of the top players to thrive and that is good for everyone. Lack of viable competition leads to stagnation.
I’ve said it here before and I will say it again now. Any thought that Sirius will introduce a product that will kill the Internet radio competition from Pandora, Slacker, Mog, Rdio or any of the other options is a pipe dream.
Pandora does not have the subscription revenue stability coupled with advertising revenue, the commercial free music, or the depth of other content to legitimately compete.
Do you really think between Mel, Malone, Maffei that Pandora is going to somehow outdue what Sirius is going to be able to provide with 2.0. and beyond. If so, go buy a bunch of shares of the IPO and watch those directors sell so fast you don’t know what hit you.
A few points.
*Pandora isn’t profitable yet. Like Sirius did, they are working on it and they will be.
*Pandora and Slacker both most certainly do have commercial free music and both services repeat far, far less often than SiriusXM.
*I could care less if they add talk and other content but apparently they are going to.
Sirius 2.0 is vaporware. Announced in theory but no details. Assorted commentary about a patent application. It sounds OK in theory but for as much as you want to say that Pandora can’t compete with Sirius 2.0 they are not trying to. There is plenty of room for Sirius to be Sirius and Pandora to be Pandora.
w h a t an asshole!!
Pandora’s independent auditor just examined their books and says that the books don’t add up. I signed up for a “free” subscription about a month ago, tried to listen for about 3 days, but honestly thought the content was far inferior to SIRI. I “programmed” about 10 stations to my liking, but they played way too much music that I didn’t like. I do believe that Pandora is better than AM or FM, which I used to enjoy listening to, but is now a vast wasteland of garbage. I don’t like the fact that Pandora limits your listening to 40 hours per week or you have to pay, and I don’t like hearing the same 3 or 4 commercials every 3rd song. They must not have many sponsors, which is probably why they have lost tens of millions of dollars already, have never made a profit, and, in my view, probably never will. This IPO looks like a way for the few investors that have lost millions of dollars so far to recoup their money by dumping shares on the public. And if that’s not the case, why are they “cooking the books”?
its evident that someone has their head firmly wedged up their posterior.
I loved sirius before the merger with xm. Onced they merged they got rid of 2 favorite channels boombox and the beat. Boombox played mash ups and electronic beats and bootlegs, rave, bands like chemical brothers, crystal method, the prodigy, the beat played vocal trance,mix shows like badboyjoe megamix. louie devito dance factory and 6 hrs of adrenaline, I now listen to Pandora because they play what i want to hear,i hope they get a satellite and compete with sirius/xm,then maybe they will bring back our channels they took away from us when they merged.
Beware of “Randy A” . . . axe-grinding serial complainer who lacks objectivity . . hidden agenda! Read for yourself.
Randy A says:
February 7, 2011 at 3:50 pm
“Any hope that Sirius can do away with the Internet competition with some compelling and innovative new online option that would wipe out Mog, Pandora, Slacker, Rdio and the others is an absolute pipe dream. It would require a level of thought and creativity that Mel has never demonstrated throughout his career. The people at XM that could have made it happen were all let go.”
I don’t know if anybody caught the grammys last night,but Patrick Monahan of the group “Train” gave Howard Stern a shout out of thanks when accepting for best group or duo. Sirius/xm the human content project.
I sub to xm and then siriusxm for 6 years. I recently cancelled. I started using Pandora streaming from my driod to my car. It sounds better, only plays the music I like, when there is a commercial, I change my station. I have no interuption in service and I live in rural IOWA. I may come back to SiriusXm if they become more dynamic. I own SIRI, so I guess that my hedge, but for me, Pandora has a better product. I hope this will make SiriusXm better.
Spencer, one very important factor that you failed to mention is that Pandora’s INDEPENDENT AUDITOR stated that their bookkeeping doesn’t add up. I opened a Pandora account about a month ago, and TRIED to listen for about 3 days. It’s a little better than tereresteral AM or FM, but not much, and TR frankly STINKS. Pandora’s ‘FREE” VERSION limits you to listneing 40 hours per week, or about 1 1/2 days for a trucker. If you don’t interact every few minutes, Pandora asks “are you still there?” Then they tell you that they are paying for each song and you need to log off if you aren’t listening (to their commercials especially, which consist of about 3 or 4 different commercials run so often that you want to scream. No NFL network, No Major legue Baseball, No Howard, No Oprah, No Martha, and the music is far INFERIOR to that played on Sirius. You may have “built a station” based on The Beatles, for example, and within a couple of minutes you may be listening to Slim Whitman yodeling. Even the songs performed by major artists are often versions I’ve never heard on the radio, and most of the songs played were not of the “greatest hits” variety. I suspect that they are getting a lesser royalty rate by programming less popular, and inferior quality songs and artists to keep their average royalty costs down. As you said, they have never made a dime. I was looking at possibly picking up some of their stock on the IPO, but after becoming a “subscriber” (I haven’t listened to the service in about a month) and experiencing the quality (or lack thereof) of the program content, I don’t have much interest in their stock. I suspect that a huge majority of their “subscribers” would not fall in a demographic group that would tend to “invest” in much other than cigarettes and lottery tickets. I wondered in my own mind, considering the Auditor’s remarks that they need to clean up their bookkeeping, if the IPO isn’t a means for the initial investors who have lost millions of dollars to recoup their losses by dumping the company. I lost enough on Enron and Wroldcom stock years ago to make me think twice about buying companies which engage in “creative bookkeeping”. I also wondered how you consider someone a “subscriber” who has never paid a dime for a “subscription” and furthermore, wouldn’t pay even $3 a month to listen to the service. This is a classic example of “you get what you pay for.”