Pandora faces competition from Apple’s iTunes Radio amidst financial losses

After just a few days on the job, Brian McAndrews, the new Chief Executive Officer of Internet radio giant Pandora, is already faced with a serious challenge. As of Wednesday, the company is competing with Apple’s new iTunes Radio service, which many analysts believe could end Pandora’s long-standing domination of the Internet radio market.

McAndrews’ arrival comes at a challenging time for the 740 person company.

iTunes Radio has 27 million tracks in its catalog compared to Pandora’s one million.  Listeners also have the ability to buy a song while they are listening to iTunes Radio, an option Pandora doesn’t offer. Will Abramson, founder of Yours Truly, a music blog based in San Francisco, says that it remains to be seen whether iTunes Radio will surpass Pandora as the leader of internet radio.

“The listeners like [Pandora’s services] because it has the human touch,” Abramson says, noting that Pandora has music professionals vetting each song they put into their catalog.

Abramson also added that the iTunes Radio catalog is so vast that a listener won’t have enough hours to even hear a fraction of the songs. “Having a huge catalog is an asset, but the fact is you are only going to cover a sliver of those 27 million tracks.”

Since Pandora launched in 2000 it has accumulated a deficit of $139.6 million due largely to a burdensome royalties contract. The company had a huge jump in revenue over the past two years, from $138 million in 2011 to $427 million in 2013. However the operation expenses, including royalty payments, marketing and administrative costs, increased at an even faster rate than the revenues. In 2011 the company reported a net loss of $1.8 million. Two years later the company reported an even greater loss of $38 million.

The current contract Pandora has with Sound Exchange, a non-profit responsible for managing the distribution of royalty payments, compensates the artists and recording label on a per play basis. Each time a song is played on Pandora, the artist receives a fraction of a penny (.0001). The 14 billion hours of radio that Pandora streamed in 2012 cost a hefty sum, with more than half of Pandora’s $427 million in revenues going to royalty payments.

Speaking at the Bank of America Merrill Lynch Media Communications and Entertainment Conference in Beverly Hills, Pandora founder Tim Westergren told an audience of media business types that preparations for the negotiations of a new royalty contract lasting through 2020 are already underway.

As CEO, McAndrews will be expected to make the company financially sustainable even at a time of increased competition. From 1999 to 2007, McAndrews was the CEO of fastest growing digital marketing company of that time, aQuantive.

“He has a rare combination of ad, technology, media experience,” says Westergren.

Pandora announced on September 11^th that McAndrews would succeed Joe Kennedy as the company’s CEO. “[McAndrews] is digging in already…We want to get him up to speed as soon as possible,” says Westergren.

Image: Brian McAndrews, the new Chief Executive Officer of Internet radio giant Pandora, faces competition from Apple’s new iTunes Radio service. Photo courtesy of Pandora.