Radio and Streaming Audio

Pandora Buys Radio Technology and Shifts Business Plan

Published on .

An example of a display ad running in Pandora's mobile app.
An example of a display ad running in Pandora's mobile app.

Pandora, acknowledging that advertising revenue may not be enough to offset its ballooning content acquisition costs, plans a subscription-based, on-demand version of its music-streaming service. The plan gained traction when Pandora agreed to acquire technology from streaming music service Rdio for $75 million in cash earlier this year. Pandora's move aims to help it better compete with rivals Spotify and Apple Music, both of which offer radio and on-demand music-streaming services, and to be able to afford all the music people listen to on Pandora.

Pandora entered the live music business this year as well through its acquisition of online ticket sales company TicketFly.

In addition to keeping pace with its competition, Pandora is buying Rdio's technology in order to keep up with the growing cost of doing business. In the third quarter of 2015, Pandora shelled out $211.3 million for all the songs its 78.1 million active users played. That's nearly as much as the $254.7 million that Pandora generated in advertising revenue for the quarter, which accounted for 82% of the company's total revenue. Its advertising revenue only grew 31% year-over-year while its content acquisition costs soared 90%.

Pandora already has a subscription business called Pandora One that charges people $4.99 a month to listen to Pandora's radio service without ads. However its non-advertising business needs to grow significantly in order to reduce the company's reliance on ad revenue to book a profit. With Rdio and TicketFly, Pandora's hope is that it will.

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