DealZone

Pandora tunes into $35 million

July 11, 2009

From peHUB:

Online radio network Pandora has raised $35 million in new VC funding, according to multiple sources familiar with the deal.

No word yet on who’s leading the round, or which existing shareholders re-upped. Pandora had previously raised around $29 million, from firms like Crosslink Capital, DBL Investors, Hearst Corp., Labrador Ventures, Selby Venture Partners and WaldenVC.

[Update: The company has emailed to say Greylock is leading the round, with partner David Sze joining the Pandora board of directors. Pandora declined to comment on the round's size or valuation]

What’s particularly interesting here is that the new financing was signed while Pandora’s very existence was in jeopardy. The company had been operating under a royalty structure that caused it to shell out nearly 70% of its revenue to record labels, and which was expected to increase by nearly 33% next year. Pandora founder Tim Westergren referred to it as a “crisis,” and TechCrunch wrote that the company may need to be “sacrificed before artists and labels to realize just how absurd their position is.”

All of that changed earlier this week, when Pandora and other webcasters reached a new agreement with the recording industry. Under terms of the new deal, large players like Pandora will pay out either 25% of revenue or a per song fee that will increase each year (whichever is higher). Still sounds onerous compared to terrestrial radio – which pays zilch – but is still considered a big win for Pandora.

Pandora also will begin charging a nominal fee to those who use its service more than 40 hours per month.

I’ve got to assume that investors believed this revised royalty agreement was a done deal, although my best bet is that some sort of contingencies were attached to the $35 million (like if the royalty thing fell through, so did the financing). Otherwise, it would have been a hell of a risk to take…

Hopefully we’ll learn more soon. I’ve put in calls to Westergren and Pandora CEO Joe Kennedy, but am not terribly hopeful that I’ll hear back on a Friday afternoon…

Comments
4 comments so far | RSS Comments RSS

Yes, it is interesting… I hope that with Pandora, all will be normal. It is very well acquainted with the company.

 

I used to think Pandora was the coolest thing around. Free, customizable, and without commercials… and then even available on my blackberry! Then the commercials started. Personally I find the McDonald’s commercials really obnoxious. Now I received an e-mail:

“You Are Approaching Your Free Listening Limit. …For unlimited monthly listening as well as other cool features, you can upgrade to Pandora One for $36 per year.”

That’s not really a “nominal” fee. Am I so wrong in assuming that Pandora’s customer base is mostly younger people eager without unlimited budgets? It doesn’t make sense to expect people to shell out $36 for a service which they loved mostly because it was free.

Also in the irrational category, their other option: “2. For a one-time fee of just 99 cents, you can continue listening as much as you’d like for the rest of the month of July”. Are they joking? I know the US has some notoriety for having a younger generation that sucks at math by international standards, but REALLY? What’s the incentive to shell out $36 instead of $.99 twelve times? Do they expect their “other cool features” to be worth paying at least three times as much? (At “least” 3x assuming that some months you might not pay the extra 99 cents.)

I appreciate being able to design my own radio stations, yet Pandora has its flaws even in that department. Whatever algorithm they use ends up playing the same songs quite a bit more than necessary. Obviously I wasn’t about to complain about something while it was free, customizable, without commercials, and portable on my phone. However, the only way I *might* consider paying for it was if the fee was reasonable, and the service perfectly worth the price. It doesn’t help that their pricing structure seems almost as insulting to my math skills as the McDonald’s McLatte commercials are to any intelligent female listeners.

I hope Pandora is just going through a period of adjustment, and that things will settle into a more reasonable arrangement in the near future. Maybe their royalty fees will drop? Either way, I now have Q104.3 streaming online as my background music. If I want another genre, I can damn well type another station’s url into my web browser rather than typing my credit card info into Pandora’s site.

Posted by Luca | Report as abusive
 

Luca, The $36 is a way to support the site, and it does have a few features that come with it. There is more to life than math and wanting everything free. Should they have no commercials and no fees and just pay the royalties? Would you like free internet service and a new car along with that?

Posted by J S | Report as abusive
 

I want a pony, daddy! I want it NOW! Me me me, now now now!!! Shut up Beruca, the whole damn world isn’t free.

Posted by bob | Report as abusive
 

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