A new storage memory platform called Fusion-io announced today that Pandora—the largest internet radio company in the United States—now uses Fusion’s ioMemory to cache its music library. According to the press release, Fusion’s powerful servers that consume less energy than Pandora’s previous disk-based ones are the solution to pleasing its ever-growing listening audience (over 69% of internet radio listeners in the US choose Pandora).
Hold on a minute though, haven’t we been hearing for months that Pandora is losing money? These new servers might help the monthly energy bill go down, but I have to ask: what is Pandora’s solution to increasing royalty fees?According to BusinessInsider.com, Pandora is beloved by its fans, but it’s not making money because every time someone listens to a song, Pandora must pay royalty fees to the artists and record lables that own the content. Pandora tries to make up for that expense in advertising, but advertisers want the largest audience possible and that involves more song fees. According to Business Insider:
It’s a vicious cycle in which any ad money Pandora makes is instantly spent on the songs that generated that ad money. In fiscal 2012, pandora lost $16 million on record high revenues of $240 million.
Pandora has a bleek future if it can’t adapt to competition in the market; Spotify also wants a piece of the Internet radio pie.
So now you might be wondering, “what could possibly make it more difficult for Pandora to stay afloat?” Funny you should ask! According to CBSNews.com, music licensing costs are expected to rise between 37 and 47 percent through 2015.
So why would Pandora even consider investing so much money in new servers if they are aware of the factors stacked against them? Fusion-io Chief Technology Officer Neil Carson said they just want to create a better listening experience for fans:
“When listeners tune in, they expect music without interruption, so Pandora’s team was committed to architecting a modern data center that would continue to deliver as the company grows. With Fusion-io, Pandora is able to meet these demands with a solution that uses far less energy, costing less for both Pandora and our planet.”
Do they really think going green will help raise profits? I’m not so sure. My hunch is that Pandora may be developing a pay model similar to Spotify or Hulu where monthly fees allow unlimited access to streaming. After all, there were no mentions of Pandora being a free service in the press release today. Only time will tell the fate of Pandora and free internet streaming, but I think the BusinessInsider.com article said it best:
Good luck trying to make money in an environment where costs are set to increase as prices decline.