Will Pandora Collapse in 2014?

Music_distributionRocco Pendola has been known to make some crazy statements.

Consider the headlines of his most recent articles over at The Street, where he’s a full-time blogger: “Steve Jobs Was an Idiot”—“Facebook Should Buy Twitter”—“Nobody Can Save Microsoft, It’s About to Die.” These pronouncements are, at the very least, controversial.

But what he has to say about Pandora and music distribution is particularly shocking.

Earlier this month, Pendola named Pandora the company that’s “Most Likely to Collapse in 2014.” He admits, of course, that few agree with him on this. Wall Street analysts, investors, and journalists from various media all “love Pandora.” Can so many experts be wrong?

Perhaps not exactly—but they’re not thinking long-term. Pandora “sounds great today,” Pendola says, “but today doesn’t matter.” What matters is six months from now, or a year.

So what’s the problem? What’s going to happen to Pandora in six months? Why won’t it continue to be successful?

Its failure comes down to one word: Ads. If Pandora were a smarter company, “it would not compromise… the user experience with more advertising; instead it would… build a data business.” What Pendola means by this is that Pandora should begin selling its vast store of data about user preferences to record labels and advertising companies. There’s a massive market out there for such data, and it could provide a consistent revenue stream for the company, particularly if access to the data was sold via subscriptions. With revenue from this kind of data business, there’d be no need to cram ever more ads into users’ streams, which is annoying for everyone.

Pendola points out that major competitors Spotify and Rdio are both moving strategically towards fewer ads and alternative revenue streams. Spotify, for instance, recently purchased The Echo Nest, a music intelligence startup that licenses its technology to outside partners. This’ll be a compelling new source of revenue for Spotify, independent of its primary business as a music distribution service.

If Pandora doesn’t catch up, and soon, the company may indeed prove that Rocco Pendola isn’t as crazy as he seems.

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