Yesterday was a rocky day on the financial markets for streaming radio service Pandora, as its shares fell 20% following the announcement of its latest quarterly financial results.
The drop also came on the day the company agreed a $90m settlement with major labels to end lawsuits over use of music recorded before 1972. That should bring more certainty to the company’s future costs, but it wasn’t enough to stop the markets being spooked by the wider picture.
We’ll start with the deal, which provides a US-wide resolution to litigation from ABKCO Music & Records, Capitol Records, Sony Music, Universal Music and Warner Music Group. The details remain confidential for now beyond the $90m settlement cost.
“We pursued this settlement in order to move the conversation forward and continue to foster a better, collaborative relationship with the labels,” said Pandora CEO Brian McAndrews, while RIAA boss Cary Sherman described the deal as “a significant milestone and a big win for the music community”.
Investors were more concerned about Pandora’s financial results. The company reported revenues of $311.6m – up 30% year-on-year – and a non-GAAP (generally accepted accounting principles) net profit of $22.9m.
The “non” there is important: under GAAP standards, Pandora reported a net loss of $85.6m thanks to a combination of the pre-1972 settlement and a separate decision not to take advantage of cheaper publishing rates under an “RMLC” licence after buying local radio station KXMZ in June 2013 – a strategic shift that removes a point of conflict with publishers, but which necessitated a $23.9m charge.
Investors are monitoring Pandora’s growth closely though: its monthly active users were up just 2% year-on-year to 78.1m, while its total listener hours rose 3% to 5.14bn. The elephant in this particular room is the impact of Apple Music’s launch and free trial.
“We expected some short-term impact to our audience growth as listeners tried this highly-promoted new service,” said McAndrew in Pandora’s earnings call. “Given the scale of press and consumer attention on this launch, the impact on our active users and listening hours was muted… consistent with what we experienced during the launch of Apple’s radio service in 2013.”
How to restore that investor confidence? Pandora hopes that the combination of its service with analytics platform Next Big Sound and ticketing firm Ticketfly will be the key.
On the latter, there were some new financial stats: in the first nine months of 2015, Ticketfly sold more than 16m tickets with a gross transaction value of more than $530m, of which $52m was revenue for Ticketfly itself.
“Pandora, Next Big Sound, and Ticketfly are all deeply data-driven companies,” said McAndrew. “Our joint purpose is to build the world’s most powerful music discovery platform.” While also convincing Wall Street of its merits.