Internet radio service Pandora Media posted a 4143 per cent increase in net loss at the end of 2015, amid higher operating costs, in order to compete with music streaming heavy-hitters currently dominating the market.
The loss jumped from -$2.03 million USD in its 2014 third quarter to -$85.93 million USD in October 2015.
Competition from streaming services like Apple Music and Spotify have challenged the company’s ability to innovate a market it was once at the head of, said Ken Wong, marketing professor at Queen’s University’s Smith School of Business.
Pandora’s third-quarter financial statement indicated that operating expenses in developing their service had increased 63 per cent between 2014 and 2015, from $13.3 million USD to $21.8 million USD.
Overall expenses to operate as a business, including sales and marketing costs, increased 43 per cent from 2014 to 2015.
Within the statement, Pandora said substantial risks and uncertainties may impact current predictions made in the report, and these risks are predicated on factors such as operation in an emerging market, the ability to attract and retain advertisers and competitive factors.
Pandora was first launched in 2005 in the United States, one of the first services to make online radio streaming popular, building the foundation for the current streaming market.
The company also acquired Rdio in 2015, a competitor in internet radio services in order to move into on demand streaming services. But the introduction of Apple Music left the company with increase vulnerabilities when attempting to jump-start their streaming capabilities.
Although Pandora posted increased revenue in 2015, the cost of operating has increased, meaning that revenue is not enough to grow, said Ken Wong, marketing professor at Queen’s University’s Smith School of Business.
Wong said as Pandora’s sales began to decline, the cost to attract and retain paying customers increased.
“So even though sales may go up, profits are dropping because these fixed costs are climbing faster,” he said.
Pandora’s inability to differentiate itself from its competition- offering consumers nothing unique to other companies that offer the same services-has left it behind in an industry that continues to grow, even though it was first to the gate a decade ago, Wong said.
Spotify offers custom playlists and access to exclusive celebrity music sessions. Apple Music is backed by their company’s deep pockets and delivering of exclusive content- like Taylor Swift.
“When you’re first to the market, you get a certain reception predicated on the fact that you are the innovator. And if you’re not careful, you can start believing your own press,” he said.
“Start thinking your made in the shade, until someone says ‘hey, I can do that and I can do that better’, and that’s what happened with Spotify and Apple Music,” he said.
Pandora is currently in third place when it comes to streaming, which is an extremely vulnerable position to be in, said Toronto-based technology analyst Carmi Levy.
“There’s a limit to the number of services that most consumers are willing to carry and pay for at the same time, and that number is certainly less than three,” he said.
“On the one hand, it cleaned up its backyard in 2015, but by that time, the waters in which it swims had become much more shark infested”, he said.
Pandora has lost a lead it once had and don’t have the resources to fight off competition, and with a falling out in the market, there might not be room for the company, Levy said.
“It needs to find new ways of delivering a unique music consumption experience, and as 2016 dawns were not really seeing any signs of that yet,” he said.
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