Even though Pandora can’t make a profit for itself, it’s generating tasty additional income for Apple and Google.
According to the digital service’s, CEO Brian McAndrews, Pandora paid $42.6 million in commissions to the two tech giants last year – essentially a tax on any subs which were acquired through the duo’s own app stores rather than through a browser.
That works out at 12.4% of Pandora’s total non-GAAP sales and marketing spend in 2015 of $343.6 million.
Considering that Pandora’s full-year figures for 2015 showed a net loss of $170m, this arbitrary payout to the tech world’s two biggest companies must have stung.
In Q4 alone, Pandora had to pay Apple and Google $11.1m in commission, 11.5% of its $96.5 million non-GAAP sales and marketing expense in the quarter.
The company is projecting that next year it will have to pay around $50m.
“It certainly puts us at a disadvantage to pay 30% to platforms who also happen to compete with us.”
Mike Herring, Pandora
“It certainly puts independent music services at a disadvantage where we’re paying 30% of the economics out to the platforms that distribute our apps, who also happen to be competing with us, and for the same users, and the same economics,” Pandora CFO Mike Herring told investors.
When one analyst pointed out that a jump from $42.6m to $50m would suggest Pandora didn’t think its subscription tier – PandoraOne – was going to grow much in 2016, Herring replied:
“So, yes, we don’t expect sub revenue to grow very quickly this year, until we are launching, sort of, the next generation of Pandora One and additional services on top of that.
“I think, maybe about 5% year-over-year from a revenue perspective. So that’s why we don’t see the mix shifting from in-app purchases versus direct purchases changing a lot.”
Pandora wouldn’t be alone in feeling a little ripped off by the commission they have to pay to Apple on its App Store, which works out at 30% of transactions.
Last year, Spotify flagrantly encouraged customers to subscribe via their desktop site rather than through Apple’s store – using the below helpful consumer message.
(Users can still sign in to the Spotfy and Pandora iOS apps for nothing, so long as their billing relationship was established elsewhere.)
Music Business Worldwide
