Pandora?released its Q2 earnings?on Wednesday and the numbers provide the perfect context for why the combo of AudioAnywhere and Bixy (our advertising platform) will demonstrate the solution so desperately needed by the music industry.
Pandora should be mostly thrilled with their latest earnings call. Revenues were up 51% from last year in the same period. Ad revenues are also up by 53%. Listening hours and subscribers have soared. However, there was one pretty large negative figure. Losses tripled from last year to $5.4 million. Yikes!
These results sound familiar: growth in every category except earnings. Eventually, investors will sour on the exuberance of top-line growth and demand profits. So why hasn?t it been easy for Pandora?
First, let?s examine the business model for streaming music services (Pandora, Spotify, etc.). Pandora generates revenue via subscriptions and advertising. About half of Pandora?s revenue goes to pay royalties to rights holders (artists, record labels). The other half pays for marketing, product development, ad sales and everything else required to run a business. And at the end of the day, Pandora is in the hole. Why? Because only Pandora?s paid subscribers are profitable; the vast majority of listeners don?t pay. For the rest of us listening to ?free? (ad-supported) music, the ads just don?t make enough money for Pandora to earn a buck. So, what can they do?
They could start charging everyone, but you and I both know that we?d leave in a heartbeat to go listen to free music elsewhere. They could ask the record labels to lower their royalty rates (and they have ?a lot), but the record labels can?t lower the rates any further. They?re hurting too. Between illegal downloads and meager streaming royalties, the music business is in shambles. That leaves us with one option: generate more revenue per advertisement. The tricky part is implementing a system that works for both listeners and advertisers.
That?s exactly what we?re trying to do with AudioAnywhere and Bixy. We think our solution is precisely what Pandora needs to fix their business model.?If they don?t, they?re going to languish and provide mediocre returns (at best) to investors for another decade. That won?t work for artists, listeners, record labels or streaming services. Bixy will hit the market soon. Let the experiment begin.
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