Pandora shares soar – makes online music big business.
The online radio site Pandora opened up on the New York Stock Exchange this morning, opening trading at $20.75 per share. According to VentureBeat, that’s an increase from $7-$9 per share when they first filed for their IPO. In real money, this values the company at a healthy $4.2bn , which is $1.6bn higher than expected. Though maybe not at LinkedIn’s levels, who had a flag draping the entrance of the NYSE this morning, it shows that music online is starting to turn into big business, and the appetite by investors in following the huge user demand for accessible online music, and most importantly, shareable music online. And it needs to be a serious business, as Pandora paid out 49% of its revenue to license music in the year ending Oct 31st 2010. With annual revenue at nearly $138 million, you’re talking about serious money, and a serious need to attract investment.
The race is on
The generous valuation for Pandora will no doubt create a race among similar existing music services, or startups that seek to revolutionise the way we listen to and share music online. With the not-so-pretty licensing costs that Pandora are facing however, anyone wanting to get into this space needs a significant amount of investment and a fast track to investment to keep the money rolling in. And the race is most definitely on. Turntable.fm has only really been around for a few weeks yet is already gaining huge traction online. While it’s in early beta phase, traffic figures are unreliable for Turntable (with Compete showing around 3,500 visits for May 2011), if online buzz is anything to go buy, the interest is huge, with around 20 new results every minute on Twitter alone – and this isn’t even a Twitter product :
Spotify signs deal with Universal Music
Looking at another huge player in the online music space, Spotify last week announced that a distribution deal had been signed with Universal Music, following existing deals with Sony Music and EMI Group. This is a significant deal for Spotify as it sees them move one step closed to an anticipated U.S. launch. And though the service isn’t directly comparable to Pandora, it represents another stage in online music, or social music, finally arriving and becoming a big business. The solution that Spotify offers filled a user demand in an easy way to listen to music on your desktop, while also bringing in seamless sharing aspects such as sending playlists to friends, or integrating with Facebook to see what your friends are listening to. In a way it provided a tidy solution to the messy way of accessing and sharing music online, in much the same way that Turntable has, albeit to an international audience.
Of course all of these music services have the might of Google and Apple snapping at their heels, who are both looking at cloud-based music solutions. And while they can come along and offer a service to a mass of users instantly, when it comes to music it seems there is an appetite for indigenous services – the likes of a Pandora, Spotify or Turntable that are developed specifically to offer their users a new way to listen to or share music, with an innate understanding of what users are looking for. The valuation of Pandora is certainly testament to that.
The story of online music services up until this point has been peppered with failures and controversy, due largely to the fact that the labels refused to play ball. But in the example of Spotify, who boast relationships with the 3 major record labels, it seems the time is ripe for the business end of online music to arrive. And more importantly, this is getting increasingly social, with recent campaigns such as Lady Gaga partnering up with Farmville providing a good example of music and social moving together :
