Thursday, June 03, 2010

Pandora -- I Still Don't "Get" It! -- Buyers Beware of Its Box

Online music service Pandora just closed another round of VC funding, the amount of which is undisclosed. That brings the service's total VC "take" to significantly more than the $57 million to date -- yes, simply to date -- i.e., PRIOR to this latest round! That prior number includes the $35 million that it just raised last year.

Now, don't get me wrong -- I like Pandora. In fact, I am one of the few paid subscribers. The service is primarily free (i.e., ad driven), but two paid upgrade options exist: (1) $.99/month; and (2) $36/year for "Pandora One" (no ads and unlimited skipping of songs). I was one of the few who opened up my wallet and paid the whopping $36 for the entire year.

And, there's the rub. Yes, Pandora has great distribution. In April, the service crossed the 50 million registered user mark. But, registered users and "active" users are not the same thing -- they are very very different. And, registered users certainly does not mean active paying users. And, how many actually do pay? Not many, that's for sure. And, let's not forget, there are significant COGs involved -- music licensing fees and bandwidth for streaming, among others.

So, I don't "get it." I really don't. The service itself is good -- not great (I have many complaints about its repetitive playlists and I have not experienced its music recommendation engine to be significantly better than the competition's). BUT, most importantly, how does Pandora become a compelling, immensely profitable business that throws off loads of cash?

Undoubtedly, Pandora is gunning for an IPO -- selling its distribution and dream to the public markets. And, it does have a good story to tell.

But, a story is not the same as business reality. So, potential buyers beware. You may want to think twice before you open Pandora's box!

Music Vid Service Vevo Victorious So Far (But Can It Monetize?)

I believed in the promise of online music video service Vevo when it first launched 6 months ago (here is the link to my blog post back then). The service -- backed by major music labels and the gargantuan reach of YouTube -- held strong promise.

And, that promise is being realized so far. Vevo is now the #1 music video site in the country -- and #4 online video site overall. Not bad for a start. (Click on this link to read the Los Angeles Times' feature story about the company published today.)

But, although distribution is promising, will the service be able to effectively monetize? It's business model is purely advertising-based, and the company has no plans to change this any time soon. And, the company certainly ain't profitable yet.

... and speaking of profits in the online music game, then there's Pandora. Pandora just closed yet another round of VC funding (the amount of which is undisclosed). Up to this point -- with emphasis on "up to this point"! -- Pandora had raised $57 million, including a $35 million round less than one year ago! (More on this in my separate post coming now ...)