Pandora plans $100-million IPO

Pandora Media Inc., an Internet streaming radio service used by more than 80 million listeners, is planning to launch an initial public offering this year.

After years of struggling for survival, the Oakland, Calif., company is on the verge of breaking even and sees the offering as an opportunity to raise $100 million in order to grow its business.

In its prospectus filed Friday with the Securities and Exchange Commission, Pandora reported a $16.8-million loss on $55.2 million in revenue for its fiscal year ended Jan. 31, 2010. For Feb. 1, 2010 through Oct. 31, Pandora narrowed its loss to $328,000 on $90.1 million in revenue.

Because Pandora is largely a free service, 13.6% of its revenue came from subscriptions and other paid services in the nine months ended Oct. 31. The vast majority came from advertising.

When the company was founded in 2000 by Tim Westergren, it was more of a curious academic experiment. Then called the Music Genome Project, it used musicians to analyze the attributes of all types of music, from early Renaissance madrigals to hip-hop.

Five years later the company introduced an Internet radio service called Pandora. Individual listeners select favorite tunes or bands, and Pandora uses data collected in the project to play songs with similar qualities.

Though wildly popular, the company limped along financially until 2008, when Westergren announced that Pandora was on the brink of collapse because federal courts had ordered Internet radio stations to pay sharply higher performance royalties and made the increase retroactive.

Pandora fans reacted by launching a public campaign to ask lawmakers to reduce the royalties. The fees were ratcheted down in 2009, sparing Pandora from likely extinction.

The company still forks over 60% of its revenue to pay royalties, but the reprieve enabled it to focus on growing rather than just staying alive.

The Pandora service first became available on computer via Web browsers. Its membership took off when it introduced a version for Apple Inc.’s iPhone in 2008. About half of Pandora’s subscribers use the service on mobile devices.

Major investors in the company include Crosslink Capital, which holds 23% of the shares, and Walden Venture Capital, which owns 18%. Westergren owns 2.4%. Former News Corp. President Peter Chernin, who joined Pandora’s board in January, owns less than 1%.

Pandora did not disclose how many shares it would make available in the offering or their price.

[email protected]