Pandora 2016 Annual Report Download - page 32

for listeners and advertisers in the future against existing or new competitors, and failure to do so could result in loss of existing
or potential listeners, loss of current or potential advertisers or a reduced share of our advertisers’ overall marketing budget,
which could adversely affect our pricing and margins, lower our revenue, increase our research and development and marketing
expenses, diminish our brand strength and prevent us from achieving or maintaining profitability.
If our efforts to attract and retain subscribers are not successful, our business may be adversely affected.
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Our ability to continue to attract and retain users of our paid subscription services will depend in part on our ability to
consistently provide our subscribers with a quality experience through Pandora One. If Pandora One subscribers do not
perceive that offering to be of value, or if we introduce new or adjust existing features or pricing in a manner that is not
favorably received by them, we may not be able to attract and retain subscribers. Subscribers may cancel their subscription to
our service for many reasons, including a perception that they do not use the service sufficiently, the need to cut household
expenses, competitive services that provide a better value or experience or as a result in changes in pricing. If our efforts to
attract and retain subscribers are not successful, our business, operating results and financial condition may be adversely
affected.
If we are unsuccessful at launching expanded subscription offerings or converting listeners into subscribers of such
subscription offerings, our business may be adversely affected.
Our recent acquisition of certain assets of Rdio was intended to facilitate our launch of new subscription offerings that
provide additional functionality, including an on-demand offering. In addition to the cost of the Rdio assets, the development
and launch of such additional service offerings will require significant engineering as well as marketing and other resources.
There is no assurance that we will be able to successfully develop and launch such additional service offerings, obtain the
content licensing rights to enable the offering of such services, or be able to convince listeners to become subscribers of such
additional service offerings. If we fail to accomplish any of the foregoing and the additional service offerings are unsuccessful,
we will not realize the benefits of the Rdio asset acquisition or the substantial investment made in the development of such
additional product offerings.
If we are not successful in operating and growing our recently acquired Ticketfly business, we will not realize the benefits
anticipated when we acquired the business.
We recently acquired Ticketfly, which was our first major acquisition and represents an entirely new line of business for
us. Ticketfly’s business is highly sensitive to rapidly changing public tastes and is dependent on the availability of popular
artists and events. Ticketfly’s revenue is derived from ticketing services under client contracts with venues and event promoters
across North America, which consist primarily of per ticket convenience fees, credit card processing and shipping fees as well
as per order “order processing” fees. If Ticketfly’s clients fail to anticipate the tastes of consumers and to offer events that
appeal to them, the business may not grow or succeed. We cannot provide assurances that Ticketfly will be able to maintain or
expand arrangements with clients and other third parties on acceptable terms, if at all. Furthermore, a decline in attendance at or
reduction in the number of live entertainment, sporting and leisure events for any reason may have an adverse effect on our
Ticketfly business. If we fail to successfully operate and grow our Ticketfly business, we will not realize the benefits
anticipated when we acquired the business, and any such failure could result in substantial impairment charges.
We face many risks associated with our long-term plan to further expand our operations outside of the United States,
including difficulties obtaining rights to music and other content on favorable terms.
Expanding our operations into international markets is an element of our long-term strategy. For example, in June€2012
we began providing our service in New Zealand, Australia and their associated territories. However, offering our service
outside of the United States involves numerous risks and challenges. Most importantly, while United States copyright law
provides a statutory licensing regime for the public performance of sound recordings to listeners within the United States, there
is no equivalent statutory licensing regime available outside of the United States, and direct licenses from rights organizations
and other content owners may not be available on commercially viable terms. Addressing licensing structure and royalty rate
issues in the United States required us to make very substantial investments of time, capital and other resources, and our
business could have failed if such investments had not succeeded. Addressing these issues in foreign jurisdictions may require a
commensurate investment by us, and there can be no assurance that we would succeed or achieve any return on this investment.
In addition, international expansion exposes us to other risks such as:
• the need to modify our technology and market our service in non-English speaking countries;
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