Advertising has, since Pandora’s launch, always generated more revenue than subscription and other services. From January to December 2016, Pandora made over one billion U.S. dollars from advertising for the first time, compared to 226 million U.S. dollars from subscriptions. Pandora and other streaming music companies often incorporate advertisements into their free streaming services.
However, Pandora’s ability to offer a wide selection of music comes at a cost. Although the company's advertising revenue has increased, so has the company's content acquisition costs, also known as royalty fees. This cost stood at less than 70 million U.S. dollars in 2011, but has since increased over tenfold to 735 million U.S. dollars by the end of 2016. In 2015, Pandora’s share of content acquisition costs was considerable with a 52.4 percent of its overall revenue. However, the figure is estimated to decrease to 45.5 percent by 2023.
This high cost can be seen as a contributing factor to Pandora reporting a net loss of 343 million U.S. dollars for the 2016 fiscal year. It is inherently difficult to make a profit in the streaming music industry. According to Bloomberg Businessweek, it is ‘the existential question of can, or will, anyone make money from streaming?' Pandora, as of the end of 2016, seemed to be suffering from this fate.
Music streaming services offer many appealing features, one of which is the ability to listen to music on the go. As of 2017, 40 percent of consumers in the United States listened to online radio via mobile phone while in a car, a significant increase from the 17 percent in 2012. Pandora listeners worldwide also appreciate the mobile aspect of the service. An estimated 17 million users spent time listening to Pandora on mobile devices in 2016, a figure which is expected to increase to 23.4 million by 2023.