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Pandora to spark music IPO goldrush?

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Internet streaming site Pandora has filed for an IPO – a rare event in the tech world and even rarer for music companies. The flotation values the company at $100m.

Pandora started its personalised streaming operation in 2005, but withdrew from all overseas markets including the UK in 2008. It reckons income in the first nine months of 2010 was $90m with a loss of $328,000; for 2009 the company lost $16.7m on income of $55m. So it is heading in the right direction. It said that 86 per cent of its income is from ads, despite the introduction of a $36 annual ad-free higher-bitrate subscription programme in May 2009. Pandora claims to have 80 million registered users and a catalog of 800,000 songs, with listener hours growing fivefold over two years.

Exactly half of Pandora's income is payed out in royalties. These are scheduled to increase – as is the fierce competition for listening minutes from Rdio, Spotify and other internet-based streamers.

Pandora was founded as an attempt to commercialise the ultimate music trainspotting venture, the Music Genome Project, an attempt to catalog hundreds of song "attributes" so a computer algorithm can process them. MGP was co-founded by Tim Westergren, former Pandora CEO, in 1999.

"The typical music analyst working on the Music Genome Project has a four-year degree in music theory, composition or performance, has passed through a selective screening process and has completed intensive training in the Music Genome's rigorous and precise methodology. To qualify for the work, analysts must have a firm grounding in music theory, including familiarity with a wide range of styles and sounds. All analysis is done on location," apparently.

So now you know.

Is the Pandora IPO herald a wave of public flotations of music startups? Not likely. Pandora has notably sought alternatives to the web: by embedding itself into "smart" TVs and cars. This remains its best bet – a transformation into a respectable B2B music service provider. But the costs and competition in retail land are ferocious.

In the SEC prospectus, Pandora owns up to ropey internal financial reporting, which it is trying to improve, and admits that deals to embed Pandora in cars are non-binding – they don't oblige the manufacturer to do anything at all. ®

The smart choice: opportunity from uncertainty

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