Shares of Pandora Media Inc (NYSE:P) rose as much as 5% today, climbing to a new record high in the wake of a study which suggests that subscriptions to music services will more than double over the next three years. However, that same study also had terrible news for streaming music providers like Pandora, as it also suggested that they can never be profitable.
Pandora to benefit from subscriber explosion
The report comes from Generator Research, and it examined Pandora Media Inc (NYSE:P) and other top music streaming providers, including Spotify and Rhapsody. According to Computer World, the firm said it expects the number of streaming music subscribers to jump to 1.7 billion by 2017, with 125 million of them paying for the premium features in order to avoid advertisements.
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This increase means that music subscription revenues will rise to about $2.9 billion.
Pandora must monetize user base
The firm also believes that Pandora and other music streaming services must find a way to monetize their user base in order to become profitable. The firm also suggested another alternative: they can sell themselves to a bigger company with deeper pockets that will be able to sustain them. If they don’t do one of those two things, the firm’s analysts believe that these companies will fail.
The big problem for Pandora Media Inc (NYSE:P) and its competitors is because of how much they pay in royalties to music companies. The firm believes that Pandora may eventually have to be taken off the market like Dell was last year.
How Pandora might be able to become profitable
One way Generator Research suggests that Pandora Media Inc (NYSE:P) and its competitors could become profitable is by upselling bundles or mobile deals to subscribers. Those bundles might include a package of mobile services. They suggest bundling a certain number of paid-for music downloads in with the subscription price.
The firm said Apple Inc. (NASDAQ:AAPL)’s iTunes Match, Amazon.com, Inc. (NASDAQ:AMZN)’s music streaming service and Google Inc (NASDAQ:GOOG)’s music service “are already heading in this direction.”