Pandora has just announced it does not expect to turn a profit again until 2013 at the earliest. But the announcement isn’t a total shock. The company has suffered a number of setbacks in recent years including the emergence of streaming competitors like Spotify. It became clear that Pandora was in trouble when they had to limit their service to listeners only in the United States in 2009, but after 12 years in operation and 101.4 million dollars of debt it might be time for Pandora to change. 87 percent of Pandora’s income comes from advertising. But the company is starting to realize that advertising money isn’t covering the growing royalty payments.
Pandora’s problems don’t necessarily include a lack of users, instead they seem to be having trouble with what Digital Music News calls their, “royalty structures.” Essentially the company pays at least two forms of royalties: the first to the artist or label, the second to the composer or publisher. Pandora is in a dangerous cycle where more customers just means higher operating costs and not more income. [DMN]