• Bloomberg, Monday, February 14, 2011 11:44 AM

Showing the resilience of ad-supported streaming media -- and perhaps the over eagerness of investors -- Pandora has filed an IPO and plans to raise $100 million. As Bloomberg reports, the personalized radio platform "appeared to be a bust three years ago when the business was buried in music-royalty fees. Yet, in a dramatic turnaround, "Pandora negotiated better terms with the music industry, narrowed its losses and attracted more than 80 million users." paidContent points out, "The filing shows a company operating at a loss but with advertising revenues rising dramatically." 

Indeed, Pandora posted a $328,000 net loss during the first nine months of 2010 on revenue of $90.1 million -- compared to a loss of $18.6 million on $17.8 million in revenue during the first 10 months of 2009. Still, "The financials ... underscore the perils, as much as the promise, of the Internet radio biz," writes Variety. "Pandora is by far the leading Internet radio service ... but it has yet to earn a profit and nearly half of its revenues go toward paying royalties to be able to stream music, fees that are set to escalate over the next four years."

"Wow," exclaims The Wall Street Journal regarding the royalty fees that are sapping Pandora's business model. "Content acquisition -- what Pandora pays for the rights to songs -- is costing them a fortune. That's the (very) bad news." What's more, Pandora "said it expects its revenue growth rate will slow, because of competition and the 'maturation of our business,'" The Journal adds.

More troubling still, "An inability to reach royalty agreements with the music industry has prevented its expansion overseas and the filing implies international growth could still be some time away," according to The Financial Times. Needless to say, expecting a public company to thrive without global expansion is like expecting a flower to grow with sun and water.

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