Not only
are royalty fees scheduled to rise each year through 2015, but only about 1% of Pandora listener hours are devoted to ads -- compared to traditional radio's roughly 20%. "Those ads often repeat,
implying advertisers aren't jumping on board fast enough."
More troubling, the proportion of Pandora music going to mobile devices -- as opposed to PCs -- rose from 1% in 2009 to 60% last quarter. "Mobile ads are less lucrative," Winkler notes. Obviously, increasing ads risks alienating users, whose choice of Internet radio options, Winkler adds, will only increase. Oh, and don't forget about traditional radio companies, with their strong sales forces and better local advertiser relationships.