While 2010 lacked the type of big-dollar digital music deals of earlier years, 2011 may be different. Personalized online radio service Pandora is said to be considering a mid-2011 initial public offering, according to TechCrunch.

These rumors have surfaced before. When the company hired the CFO who took Salesforce.com public, it raised more than a little IPO speculation. Rumors spread online that investment banks were courting the company. Its online job postings were scrutinized for signs that job functions would include anything relating to those of a public company with specific financial reporting responsibilities.

It may not happen until the company has more revenue and earnings under its belt, but a Pandora IPO would be a good idea for a number of reasons:

-- The IPO market is improving after a couple of slow years. The number of IPOs in the U.S. rose to 154 in 2010 from 63 in 2009 and 31 in 2008, according to a new report by Renaissance Capital. Total proceeds rose to $38.7 billion in 2010 from $21.9 million in 2009 and $24.5 million in 2008. And while the average amount of an IPO's proceeds dropped to $251 million in 2010 from $348 million and $790 million in 2009 and 2008, respectively, the trend shows it's possible for smaller deals to get done. A new PricewaterhouseCoopers report also finds the IPO market returning to form after experiencing weakness in 2008 and 2009.

-- Pandora is the dominant company in a young and growing market. In the U.S. Pandora had 20 million monthly users back in June, founder Tim Westergren told Billboard at the time. The company has had incredible growth in recent years -- much of it fueled by mobile apps. Mobile use increased 90% in the first seven months of 2010, according to figures the company released in September. But Pandora isn't competing just against other webcasters. Cars and the digital living room are two areas where Pandora can grab listening hours away from broadcast and satellite radio. And while the company is currently content to sit out the craziness of operating in foreign markets, but there will be opportunities in the future.

-- There will be no royalty surprises - at least through 2015. As a result, Pandora's business model has reached an acceptable level of stability. The 2009 settlement with SoundExchange keep Pandora and other webcasters from running into prohibitively high royalty rates. Investors are now able to look at the scheduled increase in royalty rates through 2015 without the kind of trepidation and uncertainty that typically comes with investing in a digital music service.

-- It's a great product with a large and devoted following. Many of Pandora users are fanatical about the product. The company is rare in the successful manner it has cultivated close relationships with its users. That kind of grass roots following presents a serious competitive advantage over other webcasters who want to muscle in on Pandora's market share. From selling ads in-house to landing partnerships with auto and consumer electronics manufacturers, the advantages that come with a large, loyal following are hard to match.