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Pandora “Absolutely Killing” Spotify’s Chances on Wall Street, Sources Say…

sinkhole

Pandora’s worsening financial situation is all-but-destroying Spotify’s chances of going public, according to multiple sources speaking with Digital Music News.  Just last week, Pandora revealed second quarter losses north of $11.7 million, a significant deterioration from losses of  ‘just’ $6.9 million during the previous year.

That happened despite a massive 43% increase in revenues, to $218.9 million for the quarter.  Which is exactly the problem here.  “So all of the Pandora execs made hundreds of millions of dollars off their IPO [initial public offering],” one source noted.  “Good for them, but there just isn’t a business there.”

“It’s now becoming obvious to everyone on [Wall Street] that the more money [Pandora] makes, the worse their losses become.  And the same is true for Spotify.”

Of course, Spotify is a different type of streaming business, though it’s now being viewed similarly by investors, according to a separate source.  “If Spotify had 50 million subs, you take another look and say ‘hang on, let’s give this a chance’.  But they have 10 million [subscribers], and then pouring millions [of dollars] a quarter into the same type of sinkhole.”

“Goldman [Sachs] can always pull out a rabbit, so I’m not going to count this one out entirely.  But most [investors] I know are looking at [Spotify] and seeing another Pandora sinkhole.”

That echoes earlier sentiments by super-investor Fred Wilson, who warned that the Wall Street window for over-leveraged companies like Spotify has essentially’disappeared.’   “The combination of sky high valuations, equally high burn rates, and a disappearing IPO market is not a pleasant one,” Wilson blogged.

All of which means that Spotify might want to swallow their pride, and consider Google’s offer one more time.  “There will not be a Spotify IPO,” a third Wall Street source.  “Pandora is absolutely killing the chances.”

“And if there is [an IPO], it will be a disaster.”

Meanwhile, the forecast on Pandora is getting worse, not better: CEO Tim Westergren has been vilified by the artistic and music community, which invites potentially disastrous problems ahead.  Actually, the royalties situation that hasn’t affected listener levels, but it has bred bitterness in the artistic, recording, and publishing communities.  “The listeners couldn’t give a s–t if the artists are getting screwed,” a source at a major music publisher explained.  “They don’t even know that’s going on.”

“But when you’ve got the head of the biggest publisher [Martin Bandier of Sony/ATV] spending night and day trying to figure out how to stick it to Pandora, that’s a problem,” another source said.

Earlier this month, Bandier wrote member writers to explain that Sony/ATV was considering a ‘full withdrawal’ from performance rights organizations if royalty rates with Pandora remained inflexible.  “We recognize that full withdrawal is a significant step and we are carefully looking at all of the issues associated with this, including speaking with potential partners to assist us,” Bandier explained in a leaked letter.

 

Top image by Daniel Oines, licensed under Creative Commons Attribution 2.0 Generic (CC by 2.0).  Story cover image by Michael Daddino, also licensed under CC by 2.0.

 

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Comments (35)
  1. Anonymous

    “Tim Westergren has been vilified by the artistic and music community”

    As has Mr. Ek — with good reason — but none of that is relevant anymore. Audio-only streaming is dead, audio-only downloads and CDs are going way.

    So let’s move on.

    Video is the future. The only hope for the industry is a free, open, uncensored and user-friendly YouTube alternative, launched and financed by the industry itself.


    Reply
    1. GGG

      Add video to Spotify and Anonymous will be it’s biggest fan.


      Reply
      1. Anonymous

        True…


        Reply
        1. Anonymous

          …except it’ll need user generated content, too. That’s how things go viral.

          Spotify + video is just another VEVO.


          Reply
    2. Anonymous

      Fuck video. EDM (music of the future) doesn’t need video. It’s abstract by nature.


      Reply
      1. Anonymous

        EDM is the music of the future? :)


        Reply
    3. Versus

      Why video? Most of the time one is listening to music one does not also want to watch the video simultaneously.


      Reply
      1. Anonymous

        “Why video?”

        Because that’s what the vast majority of users want! YouTube, the world’s biggest music service, proved that.

        Now, YouTube recently committed suicide in broad daylight so we need a replacement. But that’s not a bad thing.

        A YouTube alternative, owned and operated by the industry, can pay at least twice as much to right holders — possibly much more.

        Here’s why:

        Google claims that it pays about 55% to right holders, but that’s not true: More than 40% of YouTube’s revenue comes from music — and it netted $2bn in 2013 alone — yet it paid less than $1.5bn to right holders over the past 8 years. That doesn’t add up.

        An industry owned YouTube alternative is a gold rush waiting to happen.


        Reply
        1. Anonymous

          …but again, such an alternative needs to be a YouTube replacement — not just another VEVO. Nobody wants that.

          We need a free, modernized alternative to the original YouTube with dancing cats, and all.


          Reply
      2. D'man

        Video gives users another way to listen to the music. Younger generation actually want to “see” what the artist looks like.
        Every song on YouTube that doesn’t have a “music video” also has an “art track”. It’s just the image of the CD or artist.
        Spotify and Pandora technically have that “art track” form going for them right now.
        I can be wrong, but I think YouTube will give the option of just using the “art track” video streaming if you don’t want music videos all the time.


        Reply
        1. Antinet

          Younger generation…riiiight….that’s why MTV was so big when it launched in 1982. People want to listen to music sitting down, but YOUNG and OLD people also want to listen to music other places, like a car, or on a bike, or with friends, when watching a video is either impractical or not the priority.


          Reply
    4. rickylopezGMT

      A billion people listen to music in a car every week. Most of these people ONLY listen to music in their car. I think ‘video only’ would fail with that demographic. These forums can have big opinions…but have no sway at all…and are almost laughable sometimes. I remember reading CDs being dead by 2005 [post ipod] . But still 60% of all music is sold is still on a disc…a decade later! Vinyl (music) was supposed to be a thing of the 20th century. One word about streaming IPOs – BUBBLE. Google will rule all music one day (2018 or 19) one way or another. Set your google calendars to flame mode if I’m wrong


      Reply
      1. Anonymous

        Which takes us back to the self-driving cars most manufacturers are working on…

        But, like it or not, the future is here already — YouTube is the world’s leading music platform today while audio-only streaming failed.

        Not sure what you mean by ‘video only’, either. You think we’re regressing to Chaplin & Keaton anytime soon? :)

        The future is video, but you can obviously turn off the visual part when you don’t need it.

        Crippled streaming (audio-only) platforms tell you what to do. Video platforms give you a choice.


        Reply
        1. Anonymous

          Driverless cars get green light for testing on public roads in the UK, according to the BBC and The Guardian today.

          Bye bye audio-only, hello music videos…


          Reply
  2. jody d

    The labels killed the streaming business.
    They demanded 50% of gross revenue.
    They permitted a business model that offered free music to most listeners … because
    They took huge advances and didn’t care about royalties.
    They left nothing in the pot for their publishing brethren divisions.
    Funny how we never hear labels complain about the streaming services.


    Reply
  3. Muckraker

    If Spotify went public, the game would be completely over. The only hope any of these VC’d companies have is if the primary shares are owned by someone willing to play the long game.

    Public (stock) ownership demands quarterly growth and that is just not viable in the music industry without sacrificing quality. Not at a label level (see the majors) and not on the distro side.


    Reply
  4. Anonymous

    These Wall Streeters are just figuring this out?

    What Wall Streeters are you guys talking to?

    Maybe they have their nose to far into their spreadsheets and data reports.

    If that is truly the case, probably time for some new leadership at the helm.


    Reply
    1. Paul Resnikoff

      Breathe.

      I think many have been thinking along these lines for a while. But the memo is becoming more obvious. That was the sense I got.


      Reply
  5. Anonymous

    “But when you’ve got the head of the biggest publisher [Martin Bandier of Sony/ATV] spending night and day trying to figure out how to stick it to Pandora, that’s a problem,” another source said.

    A problem to who?

    Sounds like buddy is just doing his job, one of the few actually stepping up and taking control.


    Reply
  6. Anonymous

    sucks for spotify lol


    Reply
  7. TuneHunter

    Time for Discovery Moment Monetization!
    Pandora and Spotify with rest of the Radio and streaming converted to mega music store.
    $100B music industry by 2020.


    Reply
  8. Versus

    Both Pandora and Spotify would do better by working to stop piracy, so that they could charge fair market rates, and thereby make fair payouts to the rights-holders and creators.


    Reply
    1. TuneHunter

      You are correct! …and it is easy task, Shazam has to go on their payroll instead serving for free for almost 13 years to pirating freeloaders. Just removing FREE music and lyrics ID services from discovery loop will kill 70% of piracy. This is no-brainer to convert free ranging Shazams, always broke looters of music industry, to cashiers of the business.


      Reply
  9. R.P.

    more opinion pieces here than the ny times.


    Reply
    1. FarePlay

      What do you read? Gawker.


      Reply
  10. Willis

    It’s more about the overall market than Pandora. Alibaba and Box also delayed an IPO due to economic climate.


    Reply
  11. FarePlay

    Why I resent Spotify. For a long time, some of us have talked about the lack of feasibility of interactive streaming, not just for the payouts to artist, but the businesses themselves. Their business model is terminally flawed and the entire argument about scale continues to prove itself false.

    Businesses like Spotify were never created for sustainability, they were built for a big payoff for a small group of owners and investors and in the process they have hobbled a fragile creative community already rocked by piracy for fifteen years. We may never be able to build the music business back again. Future generations will pay the price.

    The same thing is happening with Amazon. Their earnings were crushed last quarter and the stock plummeted 11%. Why? in an effort to eviscerate competition Amazon has been selling products below cost for years and as their business scaled the weight of those payouts finally caught up.

    To quote the NRA. Technology doesn’t kill art, people do.


    Reply
  12. Anonymous

    What sources – anonymous retail investors over at Seeking Alpha? Get some institutional investors on the record saying this, then I’ll listen. Otherwise this fluff piece has no idea what the hell it’s talking about.


    Reply
    1. FarePlay

      You can’t make this stuff.

      An Anonymous commenter wanting to know the name of an Anonymous source.


      Reply
  13. BiggerPicture

    The fact that Pandora has doubled their sales force over the last year should point to the fact that they are focused on growth, not short-term profitability. Their ad-revenue model has a much greater chance of turning a profit over the next couple years than subscription-based Spotify, which is quietly gambling on a multi-billion dollar buyout.


    Reply
    1. FarePlay

      Pandora needs to be in the paid subscriber business more than the advertising business. It is their only path to profitability.


      Reply
  14. anon

    Interesting that, on the one hand, Wall Street believes Pandora pays too *much* to copyright holders to make a real business, and on the other hand, copyright holders believe Pandora pays out too *little* and somehow is screwing them over by raking in the cash. Which is it? (…thus the issue with the music industry)

    I agree that the situation is only worse with Spotify – plus given they have negotiated licenses vs compulsory, there is even more uncertainty in their business model from an investor perspective. And they apparently pay copyright holders *more* than Pandora, yet there are still may artists complaining and boycotting Spotify.

    Google, Amazon and Apple must be very happy with the above scenario, given they have other business models to subsidize their music services.


    Reply
    1. FarePlay

      Sage advice. Don’t start a business that puts your suppliers out of business and I’m not talking about the record labels.

      Pandora has 2 very serious problems.

      1. Lack of paid subscribers.

      2. Lawyers running the company and creating enemies everywhere.


      Reply

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