When Lizzie Widhelm joined Pandora Media as the company’s first ad sales executive in early 2006, she estimates that one in 100 people she met with had at least “some vague idea” of what she was selling.
Fast-forward to Sept. 9, when the streaming radio service was flush enough to mark its 10-year anniversary by turning off all advertising for the day, which, Billboard estimates, cost Pandora $2.7 million in lost revenue. It is an almost abstemious way of ringing in the second decade for a service that has endured while various rivals have come and gone — in no small part thanks to its advertising.
Where other streaming companies — including Apple Music — have balanced paid and free components, Pandora bets heavily on the free, ad-supported option. How successful has it been? Ad sales made up 81 percent of the company’s revenue in the second quarter of 2015, helping it report a landmark $1 billion in revenue for the 12 months ending June 30. Local ad revenue in the second quarter was $58.9 million, up 67 percent from the same period in 2014. Total mobile revenue was $229.7 million, a 37 percent increase. Indeed, mobile has played a huge role in Pandora’s success: According to comScore, the service ranks No. 2 among all mobile apps for time spent, second only to Facebook.
It’s all in support of an unusually personalized product. Though the company began streaming a decade ago, its Music Genome Project — led by a brigade of music analysts classifying song characteristics — launched in 2000. This human-produced database, combined with Pandora users’ nearly 60 billion “thumbs-up” or “thumbs-down” responses, gave the service a huge advantage, says Billy Chasen, co-founder of the now-defunct social music service Turntable.fm. “The key is curation,” he says. ” ‘Play me something I’ve never heard and will fall in love with.’ The more you can do that, the more successful you will be.”
Of course, not everyone loves Pandora: Songwriters and the publishing industry have raged over what they consider to be the company’s low royalty rates, and legal battles are ongoing. During the past few years, its total content cost has been dropping, to 48.5 percent of its 2014 revenue — a percentage that the service will have to lower dramatically to achieve profitability.
“Monetizing free audio listening is a fantastically difficult problem to solve,” Pandora chairman/CEO Brian McAndrews said in June, “and we are alone in solving it.” The latter point is a matter of contention: Pandora shares closed Sept. 8 at $18.61, down 30 percent from $26.41 on the same day in 2014. In the second quarter of 2015, its net loss increased to $16.1 million from $11.7 million in the previous quarter.
Still, in a marketplace where growth is king, Pandora is succeeding in spite of losing money.