~~Table~~We closed the sale of ~~Contents~~Ticketfly to Eventbrite pursuant to the Ticketfly Purchase Agreement on September 1, 2017, but we remain obligated to indemnify Eventbrite for any taxes, including indirect taxes, owed with respect to any period ending on or before the closing date of the sale of Ticketfly to Eventbrite (including any period prior to our acquisition of Ticketfly). As described below, such indirect taxes for which we are required to indemnify Eventbrite could be material.

The application of indirect taxes (such as sales, use, excise, admissions, amusement, entertainment or other transaction-based taxes) to internet-based live entertainment ticketing businesses such as Ticketfly is a complex and evolving area. Many of the fundamental statutes and regulations that impose these taxes were established before the adoption and growth of the internet and ecommerce. In many cases, it is not clear how existing statutes apply to the internet or ecommerce. In addition, governments are increasingly looking for ways to increase revenues, which has resulted in discussions about tax reform and other legislative action to increase tax revenues, including through indirect taxes. ~~Changes in these tax laws could adversely affect our business.~~

Ticketfly is not the seller of tickets sold on the Ticketfly platform. Instead it facilitates the transaction between ~~our~~its venue partners and customers. If a taxing jurisdiction were to treat Ticketfly as the seller and liable for the tax of the venue partners or customers, it could result in a material liability.

During the time Ticketfly ~~does~~was owned by Pandora, Ticketfly did not ~~currently~~ calculate all applicable indirect taxes on the fees charged when a customer ~~purchases~~purchased tickets on the Ticketfly platform. Some jurisdictions may interpret their law in a manner that would require Ticketfly to calculate, collect and remit the applicable indirect taxes on the entire charges. Such an interpretation could negatively impact our ~~customers~~indemnity obligations pursuant to the sale of Ticketfly.

The issuance of shares of our Series A redeemable convertible preferred stock to Sirius XM dilutes the ownership of holders of our common stock and may adversely affect the market price of our ~~business.~~ common stock.

The Sirius XM Investment Agreement provided that (i) 172,500 shares of Series A Preferred Stock would be issued and sold to Sirius XM on June 9, 2017 (the “Initial Closing”) and (ii) the remaining 307,500 shares would be issued and sold to Sirius XM at a future date (the “Additional Closing”), subject to the satisfaction of certain customary closing conditions.

The Initial Closing occurred on June 9, 2017, whereby Sirius XM paid to the Company $172.5 million in exchange for 172,500 shares of Series A redeemable convertible preferred stock. The Additional Closing occurred on September 22, 2017 whereby the Company issued and sold to Sirius XM 307,500 shares of Series A Preferred Stock for $307.5 million. As of December 31, 2017, these shares represented approximately 15% of our outstanding common stock, on an as-converted basis. Holders of Series A redeemable convertible preferred stock are entitled to a cumulative dividend at the rate of 6.0% per annum, payable quarterly in arrears. Beginning on September 22, 2017, the Series A redeemable convertible preferred stock is convertible at the option of the holders at any time into shares of common stock at an initial conversion price of $10.50 per share of common stock and an initial conversion rate of 95.2381 shares of common stock per share of Series A redeemable convertible preferred stock, subject to certain customary anti-dilution adjustments. Any conversion of Series A redeemable convertible preferred stock may be settled by the Company, at our option, in shares of common stock, cash or any combination thereof. However, subject to explicit stockholder approval, the Series A redeemable convertible preferred stock may not be converted into more than 19.99% of our outstanding common stock.

The conversion of the Series A redeemable convertible preferred stock to common stock would dilute the ownership interest of existing holders of our common stock. Furthermore, any sales in the public market of the common stock issuable upon conversion of the Series A redeemable convertible preferred stock could adversely affect prevailing market prices of our common stock. We granted Sirius XM customary registration rights in respect of their shares of Series A redeemable convertible preferred stock and any shares of common stock issued upon conversion of the Series A redeemable convertible preferred stock. These registration rights would facilitate the resale of such securities into the public market, and any such resale would increase the number of shares of our common stock available for public trading. Sales by Sirius XM of a substantial number of shares of our common stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of our common stock.

Our Series A redeemable convertible preferred stock has rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stockholders, which could adversely affect our liquidity and financial condition, may result in the interests of Sirius XM differing from those of our common stockholders and could delay or prevent an attempt to take over our Company.

Sirius XM, as the holder of our Series A redeemable convertible preferred stock, has the right to receive a liquidation preference entitling it to be paid out of our assets available for distribution to stockholders before any payment may be made to holders of our common stock in an amount equal to the sum of (a) $1,000 per share liquidation preference and (b) all accrued dividends as of the date of the liquidation.

In addition, dividends on the Series A redeemable convertible preferred stock accrue and are cumulative at the rate of 6.0% per annum, payable quarterly in arrears. As long as the Series A redeemable convertible preferred stock dividends are in arrears, we may not declare any dividend or make any distributions relating to common stock or redeem any common stock, subject to certain exceptions (including redemptions pursuant to employment contracts and benefit plans).

Sirius XM, as the holder of our Series A Preferred Stock also has certain redemption rights or put rights, including the right to require us to repurchase all or any portion of the Series A Preferred Stock on and immediately following five years after the Additional Closing. As holder of the Series A Preferred Stock, Sirius XM also has the right, subject to certain exceptions, to require us to repurchase all or any portion of the Series A Preferred Stock upon certain change of control events at the greater of (a) 100% of the liquidation preference thereof plus all accrued dividends unpaid through the fifth anniversary of the Initial Closing and (b) the consideration Sirius XM would have received if it had converted its shares of Series A Preferred Stock into common stock immediately prior to the change of control event (disregarding the 19.99% limit).

These dividend and share repurchase obligations could impact our liquidity and reduce the amount of cash flows available for working capital, capital expenditures, growth opportunities, acquisitions, and other general corporate purposes. Our obligations to Sirius XM, as the holder of our Series A Preferred Stock, could also limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition. In certain circumstances, the conversion of Series A Preferred Stock may settle in common stock instead of cash and if such settlement occurs, it would be dilutive to our common stock. The preferential rights could also result in divergent interests between Sirius XM and holders of our common stock. Furthermore, as a sale of our Company will likely require us to repurchase Series A Preferred Stock as a change of control event, this obligation could have the effect of delaying or preventing a sale of our Company that may otherwise be beneficial to our stockholders.

We depend on key personnel to operate our business, and if we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.

We believe that our success depends on the contributions of our executive officers as well as our ability to attract and retain qualified sales, technical and other personnel. All of our employees, including our executive officers, are free to terminate their employment relationship with us at any time, and their knowledge of our business and industry may be difficult to replace. Qualified individuals are in high demand, particularly in the digital media industry and in the San Francisco Bay Area, where our headquarters ~~are~~is located, and in New York, and we may incur significant costs to attract them. If we are unable to attract and retain our executive officers and key employees, we may not be able to achieve our strategic objectives, and our business could be harmed. We use ~~share-based~~stock-based and other performance-based incentive awards such as restricted stock units and cash bonuses to help attract, retain, and motivate qualified individuals. If our ~~share-based~~stock-based or other compensation programs cease to be viewed as competitive and valuable benefits, our ability to attract, retain, and motivate employees could be weakened, and our business could be harmed.

If we cannot maintain our corporate culture as we grow, we could lose the innovation, teamwork and focus that contribute crucially to our business.

We believe that a critical component of our success is our corporate culture, which we believe fosters innovation, encourages teamwork, cultivates creativity and promotes focus on execution. We have invested substantial time, energy and resources in building a highly collaborative team that works together effectively in a non-hierarchical environment designed to promote openness, honesty, mutual respect and pursuit of common goals. As we continue to develop the infrastructure of a public company and grow, we may find it difficult to maintain these valuable aspects of our corporate culture. Any failure to preserve our culture could negatively impact our future success, including our ability to attract and retain employees, encourage innovation and teamwork and effectively focus on and pursue our corporate objectives.

The impact of worldwide economic conditions, including the effect on advertising budgets and discretionary entertainment spending behavior, may adversely affect our business and operating results.

Our financial condition is affected by worldwide economic conditions and their impact on advertising spending. Expenditures by advertisers generally tend to reflect overall economic conditions, and reductions in spending by advertisers could have a serious adverse impact on our business. In addition, we provide an entertainment service, and payment for our Pandora ~~One~~Plus and Pandora Premium subscription ~~service~~services may be considered discretionary on the part of some of our current and prospective subscribers or listeners who may choose to use a competing free service or to listen to Pandora without subscribing. To the extent that overall economic conditions reduce spending on discretionary activities, our ability to retain current and obtain new subscribers could be hindered, which could reduce our subscription revenue and negatively impact our business.

Our business is subject to the risks of earthquakes, fires, floods and other natural catastrophic events and to interruption by man-made problems such as ~~cyber-security~~cybersecurity incidents or terrorism.

Our systems and operations are vulnerable to damage or interruption from earthquakes, fires, floods, power losses, telecommunications failures, terrorist attacks, acts of war, human errors, break-ins or similar events. For example, a significant natural disaster, such as an earthquake, fire or flood, could have a material adverse effect on our business, operating results and

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financial condition, and our insurance coverage may be insufficient to compensate us for losses that may occur. Our principal executive offices are located in the San Francisco Bay Area, a region known for seismic activity. In addition, acts of terrorism could cause disruptions in our business or the economy as a whole. Our servers may also be vulnerable to computer viruses, ~~cyber security~~cybersecurity incidents and similar disruptions caused by unauthorized tampering with our computer systems, which could lead to interruptions, delays, loss of critical data or the unauthorized disclosure of confidential customer data. Our business interruption insurance may be insufficient to compensate us for all such losses. As we rely heavily on our servers and the internet to conduct our business and provide high quality service to our listeners, such disruptions could negatively impact our ability to run our business, resulting in a loss of existing or potential listeners and advertisers and increased maintenance costs, which would adversely affect our operating results and financial condition.

We may not have sufficient cash flow from our business to make payments on our indebtedness.

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including our 1.75% convertible senior notes due 2020 (the ~~“Notes”~~"Notes"), and any borrowings we might make under our credit facility, depends on our performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results.

In the event the conditional conversion feature of the Notes is triggered, holders of Notes will be entitled to convert the Notes at any time during specified periods at their option. See ‘‘Note ~~7-Debt Instruments-Convertible Debt Offering.’’~~9, "Debt Instruments". If one or more holders elect to convert their Notes, we may elect to satisfy our conversion obligation in whole or in part through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Notes, we could be required under

applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

The accounting method for convertible debt securities that may be settled in cash, such as the Notes, could have a material effect on our reported financial results.

Accounting Standards Codification Subtopic 470-20 (ASC 470-20), Debt with Conversion and Other Options, requires an entity to separately account for the liability and equity components of convertible debt instruments (such as the Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the Notes is that the equity component of the Notes is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet, and the value of the equity component is treated as original issue discount for purposes of accounting for the debt component of the Notes. As a result, we will be required to recognize a greater amount of non-cash interest expense in current and future periods ~~presented~~ as a result of the amortization of the discounted carrying value of the Notes to their principal amount over the term of the Notes. We will report lower net income (or greater net losses) in our consolidated financial results because ASC 470-20 will require interest to include both the current period’s amortization of the original issue discount and the instrument’s coupon interest, which could adversely affect our reported or future consolidated financial results, the trading price of our common stock and the trading price of the Notes.

In addition, under certain circumstances, in calculating earnings per share, convertible debt instruments (such as the Notes) that may be settled entirely or partly in cash are currently accounted for utilizing the treasury stock method, the effect of which is that the shares of common stock issuable upon conversion of the Notes, if any, are not included in the calculation of diluted earnings per share except to the extent that the conversion value of the Notes exceeds their principal amount. Under the treasury stock method, diluted earnings per share is calculated as if the number of shares of common stock that would be necessary to settle such excess, if we were to elect to settle such excess in shares, were issued. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares issuable upon conversion of the Notes (if any) then, to the extent we generate positive net income, our diluted consolidated earnings per share would be adversely affected.

Risks Related to Owning Our Common Stock

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Our stock price has been and will likely continue to be volatile, and the value of an investment in our common stock may decline.

The trading price of our common stock has been and is likely to continue to be volatile. In addition to the risk factors described in this section, and elsewhere in this Annual Report on Form 10-K, additional factors that may cause the price of our common stock to fluctuate include, but are not limited to:

our actual or anticipated operating performance and the operating performance of similar companies in the internet, radio or digital media spaces;

our ability to grow active users and listener hours;

competitive conditions and developments;

our actual or anticipated achievement of financial and non-financial key operating metrics;

general economic conditions and their impact on advertising spending;

the overall performance of the equity markets;

threatened or actual litigation or regulatory proceedings, including the ~~recently concluded~~current Phonorecords III rate proceedings in the CRB;

changes in laws or regulations relating to our service;

any major change in our board of directors or management;

publication of research reports about us or our industry or changes in recommendations or withdrawal of research coverage by securities analysts; and

sales or expected sales of shares of our common stock by us, and our officers, directors and significant stockholders.

In addition, the stock market has experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of affected companies. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. Such litigation, if instituted against us, could result in substantial costs, divert our management’s attention and resources and harm our business, operating results and financial condition.

If securities or industry analysts cease publishing research about our business, publish inaccurate or unfavorable research about our business, or make projections that exceed our actual results, our stock price and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If securities or industry analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline. Furthermore, such analysts publish their own projections regarding our actual results. These projections may vary widely from one another and may not accurately predict the results we actually achieve. Our stock price may decline if we fail to meet securities and industry analysts’ projections.

Our charter documents, Delaware law and certain terms of our music licensing arrangements could discourage takeover attempts and lead to management entrenchment.

Our certificate of incorporation and bylaws contain provisions that could delay or prevent a change in control of the Company. These provisions could also make it difficult for stockholders to elect directors who are not nominated by the current members of our board of directors or take other corporate actions, including effecting changes in our management. These provisions include:

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a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;

no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror;

the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

the requirement that a special meeting of stockholders may be called only by the chairman of our board of directors, our president, our secretary, or a majority vote of our board of directors, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

the requirement for the affirmative vote of holders of at least 66 2⁄3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our certificate of incorporation relating to the issuance of preferred stock and management of our business or our bylaws, which may inhibit the ability of an acquiror to effect such amendments to facilitate an unsolicited takeover attempt;

the ability of our board of directors, by majority vote, to amend the bylaws, which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquiror to amend the bylaws to facilitate an unsolicited takeover attempt; and

advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us.

Section 203 of the Delaware General Corporation Law governs us. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time.

In addition, if we are acquired, certain terms of our music licensing arrangements, including favorable ~~royalty~~ rates for content acquisition costs that currently apply to us, may not be available to an acquiror. These terms may discourage a potential acquiror from making an offer to buy us or may reduce the price such a party may be willing to offer.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

~~Pandora~~

~~Pandora's~~Our principal executive offices are located in Oakland, California, ~~in an office building with 233,094 square-feet,~~ under a lease for approximately 250,000 square feet of office space, expiring on September 30, 2020. Our second largest office is located in New York, New York, under a lease for approximately 100,000 square feet of office space, expiring on September 30, 2026. We recently announced a plan to expand our workforce in Atlanta, Georgia, where we have an existing regional office. We also lease regional offices in ~~Atlanta, Georgia;~~ Chicago, Illinois; Dallas, Texas; Detroit, Michigan; ~~New York, New York; San Francisco, California;~~ and Santa Monica, California and local sales offices at various locations throughout the United ~~States and in Australia, New Zealand, Canada and the United Kingdom.~~States.

Our data centers are located in colocation facilities operated by Equinix in San Jose, California and Ashburn, Virginia, ~~as well as by~~ Digital Realty Trust in Chicago, Illinois and Oakland, California and InfoMart, LLC in San Jose, California. These data centers are designed to be fault-tolerant and operate at maximum uptime. Backup systems in California and Virginia can be brought online in the event of a failure at the other data centers. These redundancies enable fault tolerance and will also support our continued growth.

The data centers host the Pandora.com website and intranet applications that are used to manage the website content. The websites are designed to be fault-tolerant, with a collection of identical web servers connecting to an enterprise database. The design also includes load balancers, firewalls and routers that connect the components and provide connections to the internet. The failure of any individual component is not expected to affect the overall availability of our website.

We believe that our current facilities are adequate to meet our needs for the near future and that suitable additional or alternative space will be available on commercially reasonable terms to accommodate our foreseeable future operations.

~~Ticketfly~~

Ticketfly's principal executive offices are located in San Francisco, California in an office building with 23,826 square-feet, under a lease expiring on January 31, 2022. We also lease regional offices in Austin, Texas; Chicago, Illinois; New York, New York; and Canada.

Subscription Radio Service—Pandora ~~One.~~Plus

Pandora ~~One~~Plus is a ~~premium daily, monthly or annual~~ paid, ad-free subscription version of the Pandora radio service ~~which currently~~that also includes ~~advertisement-free access. Pandora One also enables listeners to have more daily skips, enjoy~~replays, additional skipping of songs, offline listening, higher quality audio on supported devices and ~~enjoy~~ longer timeout-free listening. This service is valued by listeners who want the ability to have limited interactive features such as skips and replays. Similar to the ad-supported service, the more the listener interacts with the platform, the more we tailor the songs we recommend to the listener.

On-Demand Subscription Service—Pandora Premium

Our on-demand subscription service, Pandora Premium, launched in the United States in April 2017. Pandora Premium is an on-demand version of the Pandora service that offers a unique, on-demand experience, providing users with the ability to search, play and collect songs and albums, build playlists on their own or with the tap of a button, listen to curated playlists and share playlists on social networks. Unique to Pandora, a listener can create partial playlists and have Pandora complete the playlist based on the user's listening activity using the Music Genome Project. The features of Pandora Plus are also included in Pandora Premium.

A key element of our strategy is to make the Pandora service available ~~everywhere~~in any environment that ~~there is~~has internet connectivity. To this end, we make the Pandora service available through a variety of distribution channels. In addition to streaming our service to computers, we have developed Pandora mobile device applications ~~(“apps”~~("apps") for smartphones and mobile operating systems, such as the iPhone ~~Android~~ and ~~the Windows Phone~~Android and for tablets, including the iPad and Android tablets. We distribute those mobile apps free to listeners via app stores.

We expect to continue to make enhancements to Pandora Plus and Pandora Premium, which will require engineering effort, as well as other resources. In addition, in connection with the launch and continued operation of these services we have entered into direct license agreements with major and independent record labels, some of which include substantial minimum guarantee payments. In order for Pandora Plus and Pandora Premium to ~~smartphones~~be successful, we will need to attract subscribers to these service offerings. The market for subscription-based music services, including on-demand services, is intensely competitive, and ~~tablets, Pandora is now integrated~~our ability to realize a return on our investments on these service offerings will depend on our ability to leverage the existing audience of our ad-supported service, our brand awareness and our ability to deliver differentiated subscription services with ~~more than 1,700 connected devices, including automobiles, automotive aftermarket devices~~features and ~~consumer electronic devices.~~functionality that listeners find attractive. Refer to our discussion of these matters in Item 1A—"Risk Factors".

~~Ticketfly~~

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Ticketing Service

~~Pandora completed the acquisition of~~

Prior to September 1, 2017, we operated a ticketing service through our former subsidiary Ticketfly, ~~on October 31, 2015. Ticketfly is~~ a leading live events technology company that provides ticketing and marketing software and services for clients, which are venues and event promoters, across North America. Ticketfly's ticketing, digital marketing and analytics software helps promoters book talent, sell tickets and drive in-venue revenue, while Ticketfly's consumer tools help fans find and purchase tickets to events. Tickets are primarily sold through the Ticketfly platform but are also sold through other channels such as box offices. For the twelve months ended December 31, 2015, Ticketfly sold approximately 12.5 million tickets, excluding box office sales, to 4.4 million unique ticket buyers to approximately 90,000 live events, with more than $490 million in gross transaction value, excluding box office sales. Ticketfly’s operating results are included in Pandora’s operating results only for the final two months of 2015.

~~Recent Events~~

~~Acquisitions~~

~~Acquisition of Assets from Rdio, Inc. ("Rdio")~~

~~On December 23, 2015, we~~We completed the acquisition of technology and intellectual property from Rdio for $77.5 million, which includes $2.5 million in additional purchase consideration transferred prior to the closing of the acquisition. The asset sale was administered and approved by the U.S. Bankruptcy Court. Goodwill generated from the assets acquired is primarily attributable to expected synergies that will allow us to broaden our subscription business and roll out a multi-tier product offering. We have accounted for this acquisition as a business combination, and the financial results of Rdio are included in our consolidated financial statements from the date of acquisition. As a result of the sale of ~~assets, Rdio discontinued its service as of December 22, 2015.~~

~~Acquisition of Ticketfly~~

~~On October 31, 2015, we completed the acquisition of~~ Ticketfly for an aggregate purchase price of $335.3 million of common stock and cash, including 11,193,847 shares of the Company’s common stock and approximately $191.5 million in cash paid by the Company. Goodwill generated from the Ticketfly acquisition is primarily attributable to expected synergies from future growth and strategic advantages in the ticketing industry. Upon acquisition, Ticketfly became a wholly owned subsidiary of Pandora. We have accounted for this acquisition as a business combination, and the financial results of Ticketfly are included in our consolidated financial statements from the date of acquisition.

~~Acquisition of Next Big Sound, Inc. ("NBS")~~

~~On July~~on September 1, 2015, we completed the acquisition of NBS. NBS provides analytics for online music, including analyzing the popularity of musicians in social networks, streaming services and radio. Goodwill generated from the business acquisition is primarily attributable to expected synergies from future growth and from the potential to expand our Artist Marketing Platform ("AMP"). We have accounted for this acquisition as a business combination, and the results of NBS are included in our consolidated financial statements from the date of acquisition.

~~Acquisition of KXMZ-FM~~

In June 2013, we entered into an agreement to purchase the assets of KXMZ-FM. The Federal Communications Commission ("FCC") approved the transfer of the FCC licenses and the acquisition was completed in June 2015. We have accounted for this acquisition as a business combination in the twelve months ended December 31, 2015. The results of KXMZ-FM are included in our consolidated financial statements from the date of acquisition, but were not material to our operating results or consolidated balance sheets.

~~Music Royalty Matters~~

~~Copyright Royalty Board ("CRB") Ruling~~

On December 16, 2015, the CRB announced the new per performance rates that apply for commercial webcasters for calendar years 2016 through 2020 (the “Web IV Proceedings”). The rates and terms take effect January 1, 2016 and represent an approximate 15% increase over Pandora’s 2015 effective per-performance royalty rate based on Pandora’s projected blended rate for subscription and non-subscription performances in 2016. Unlike the royalty structure applicable prior to 2016, the Web IV rates do not include an alternative calculation based on percentage of revenue, but instead are solely based on per-performance rates. The rates for the calendar years 2017 through 2020 will be adjusted by the CRB to reflect the increases or

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~~decreases, if any, in the Consumer Price Index, applicable to that rate year. For additional information on the CRB ruling, please see "Item 1. Business—Pandora Content, Copyrights and Royalties."~~

~~Direct Licensing Deals~~

With respect to the public performance of musical works, Pandora has direct licenses with certain publishers for such rights. In addition, during the twelve months ended December 31, 2015, we entered into several direct deals with performing rights organizations ("PROs"), including BMI and ASCAP, among others. The majority of the licenses are structured so that each publisher or PRO receives a pro rata share of 20% of the royalties paid by us for sound recordings, with the pro rata share paid to each publisher or PRO being determined based on our usage of its works. These license agreements are structured differently from previous PRO and publisher licenses, which have traditionally been based on a percentage of a service’s revenue or a flat fee. In connection with the signing of the BMI agreement, we agreed to withdraw our appeal of the May 2015 order in the BMI rate case.2017. Refer to Note ~~8 "Commitments and Contingencies"~~5 "Dispositions" in the Notes to Consolidated Financial Statements for further ~~details.~~details on the Ticketfly disposition.

~~Pre-1972 Copyright Litigation~~Recent Events

Ticketfly Disposition

On April 17, 2014, UMG Recordings, Inc., Sony Music Entertainment, Capitol Records, LLC, Warner Music Group Corp. and ABKCO Music and Records, Inc. filed suit against Pandora Media Inc. in the Supreme Court of the State of New York. The complaint claimed common law copyright infringement and unfair competition arising from allegations that Pandora owed royalties for the public performance of sound recordings recorded prior to February 15, 1972.

In October 2015 the parties reached an agreement whereby we agreed to pay the plaintiffs a total of $90 million. The settlement resolves all past claims as to our use of pre-1972 recordings owned or controlled by the plaintiffs and enables us to reproduce, perform and broadcast such recordings in the United States through December 31, 2016. This agreement was approved by our board of directors and executed on October 21, 2015. Pursuant to this settlement, which covers approximately 90% of total pre-1972 spins on our service, we paid the plaintiffs $60 million in October 2015 and the plaintiffs dismissed the case with prejudice. As a result, cost of revenue - content acquisition costs increased by $65.4 million in the ~~twelve months ended December 31, 2015, of which $57.9 million was related to a one-time cumulative charge to cost of revenue - content acquisition costs related to pre-1972 spins played through~~ September ~~30, 2015. The remaining charge of $24.6 million will be recorded in cost of revenue - content acquisition costs over the future service period of January~~ 1, 2016 through December 31, 2016 based on expected streaming of pre-1972 recordings over the period. The pre-72 settlement further requires that we make four additional installment payments of $7.5 million each. The first was paid in 2015, and the remaining three installments will be paid on or before April 1, 2016, July 1, 2016 and October 1, 2016.

~~RMLC~~

In June 2013, we entered into an agreement to purchase the assets of KXMZ-FM and in June 2015 the Federal Communications Commission ("FCC") approved the transfer of the FCC licenses and the acquisition was completed. The agreement to purchase the assets of KXMZ allowed us to qualify for the RMLC royalty rate of 1.7% of revenue for a license to the ASCAP and BMI repertoires, before certain deductions, beginning in June 2013. As a result, we recorded cost of revenue - content acquisition costs at the RMLC royalty rate starting in June 2013, rather than the rate that was set in rate court proceedings in March 2014 for ASCAP and in May 2015 for BMI.

In September 2015, despite confidence in our legal position that we were entitled to the RMLC royalty rate starting in June 2013, and as part of our strategy to strengthen our partnership with the music industry, management decided to forgo the application of the RMLC royalty rate from June 2013 through September 2015. As a result, cost of revenue - content acquisition costs increased by $28.2 million in the twelve months ended December 31, 2015, of which $23.9 million was related to a one-time cumulative charge to cost of revenue - content acquisition costs related to spins played from June 2013 through September 30, 2015 in order to align the cumulative cost of revenue - content acquisition costs to the amounts previously paid at the rates that were set in the rate court proceedings in March 2014 for ASCAP and May 2015 for BMI. We recorded cost of revenue - content acquisition costs for the performing rights organizations at the rates established by the rate courts for the three months ended December 31, 2015, and we intend to record such costs at the rates established by direct licensing agreements beginning in 2016.

~~Other~~

~~Convertible Debt Offering~~

~~Table of Contents~~

~~On December 9, 2015,~~2017, we completed an unregistered Rule 144A offering of $345.0 million aggregate principal amount of our 1.75% Convertible Senior Notes due 2020 (the “Notes”). The Notes were offered only to qualified institutional buyers pursuant to Rule 144A under the Securities Act. In connection with the offering of the Notes, we entered into capped call transactions with the initial purchaser of the Notes and an additional financial institution (“capped call transactions”), which are designed to reduce the potential dilutive effect of issuing shares in connection with the future conversion of the Notes, if any. The net proceeds from the sale of Ticketfly, our ticketing service segment, to Eventbrite Inc. ("Eventbrite") for an aggregate unadjusted purchase price of $200.0 million. The aggregate unadjusted purchase price consists of $150.0 million in cash and a $50.0 million Convertible Promissory Note, which were paid and issued at the ~~Notes were approximately $336.5 million, after deducting the initial purchaser’s fees and other estimated expenses. We used approximately $43.2 million~~closing of the transaction. The Convertible Promissory Note was recorded at its fair value at the date of sale, which resulted in a discount of $13.8 million. The aggregate purchase price was further reduced by $4.8 million in costs to sell, $7.5 million in working capital adjustments and certain indemnification provisions, for a net ~~proceeds to pay the cost~~purchase price of the capped call transactions, and we intend to use the remainder of the net proceeds for general corporate purposes, including funding expansion of our business and to pursue additional growth opportunities.$174.0 million. Refer to Note ~~7 "Debt Instruments"~~8 "Convertible Promissory Note Receivable" in the Notes to Consolidated Financial Statements for further ~~details.~~details on the Convertible Promissory Note.

In the three months ended June 30, 2017, the assets and liabilities of Ticketfly were classified as held for sale, and we recognized a goodwill impairment charge of $131.7 million. The impairment charge was based on the fair value of the net assets as implied by the estimated purchase price of $184.5 million as of June 30, 2017. In the year ended December 31, 2017, we recognized a loss on sale of $9.3 million in the general and administrative line item on our Consolidated Statements of Operations, which was based on an adjusted net purchase price of $174.0 million as of September 1, 2017 and includes $1.1 million in transfers of cumulative translation adjustments. Refer to Note 5 "Dispositions" in the Notes to Consolidated Financial Statements for further details on the Ticketfly disposition.

KXMZ Disposition

On August 31, 2017, we completed the sale of KXMZ, an FM radio station based in Rapid City, South Dakota. The sale did not result in a material impact to our consolidated financial statements. Refer to Note 5 "Dispositions" in the Notes to Consolidated Financial Statements for further details on the KXMZ disposition.

Australia and New Zealand

On June 27, 2017, we announced a plan to discontinue business activities in Australia and New Zealand. The related restructuring charges in the year ended December 31, 2017 primarily relate to a reduction of headcount of approximately 50 employees, which resulted in employee severance and benefits costs offset by a credit related to non-cash stock-based compensation expense reversals for unvested equity awards. The dissolution of the Australia and New Zealand business operations was substantially completed in the three months ended September 30, 2017. These restructuring charges did not have a material impact on our financial statements.

Redeemable Convertible Preferred Stock

In June 2017, we entered into an agreement with Sirius XM Radio, Inc. ("Sirius XM") to sell 480,000 shares of Series A redeemable convertible preferred stock ("Series A") for $1,000 per share, with gross proceeds of $480.0 million. The Series A shares were issued in two rounds: an initial closing of 172,500 shares for $172.5 million that occurred on June 9, 2017 upon signing the agreement with Sirius XM, and an additional closing of 307,500 shares for $307.5 million that occurred on September 22, 2017. Refer to Note 10 "Redeemable Convertible Preferred Stock" in the Notes to Consolidated Financial Statements for further details on the redeemable convertible preferred stock sale.

Factors Affecting ourBusiness Model

Content Acquisition Costs

For sound recording rights, we pay content acquisition costs based on the terms of direct license agreements with major and independent music labels and distributors for the significant majority of the sound recordings we stream on our ad-supported service, Pandora Plus and Pandora Premium. Depending on the applicable service, these license agreements generally require us to pay either a per-performance fee based on the number of sound recordings we transmit, a percentage of revenue associated with the service, or a per-subscriber minimum amount. Certain of these license agreements require minimum guarantee payments, some of which are paid in advance.

If we have not entered into a direct license agreement with the copyright owner of a particular sound recording that is streamed on our services, we stream that sound recording pursuant to a statutory license and pay the applicable rates set by the Copyright Royalty Board ("CRB") for the period from January 1, 2016 through December 31, 2020 (the "Section 114 Rates"). The 2016 and 2017 rates for non-subscription services, such as our ad-supported service, were set at $0.0017 per play and the rates for subscription services, such as Pandora Plus, were set at $0.0022, adjusted for inflation. Effective January 1, 2018, these rates were adjusted for inflation to $0.0018 per play for non-subscription services and $0.0023 per play for subscription services. Sound recordings streamed under the statutory license and paid at the CRB-set rates can only be played in radio mode on our services. These sound recordings cannot be played on-demand or offline and are not eligible for replay or additional skips.

Content acquisition costs for musical works are negotiated with and paid to performing rights organizations ("PROs") such as the American Society of Composers, Authors and Publishers ("ASCAP"), Broadcast Music, Inc. ("BMI"), SESAC, Inc. ("SESAC") and Global Music Rights, and directly to publishing companies. Content acquisition costs for the streaming of musical works on our ad-supported service are calculated such that each copyright holder receives its usage-based and ownership-based share of a royalty pool equal to 20% of the content acquisition costs paid by us for sound recordings on our ad-supported service. Content acquisition costs for the streaming of musical works on our subscription services are equal to the rates determined in accordance with the statutory license set forth in 17 U.S.C. §115 ("Section 115").

The rate structure for the statutory license for reproduction rights under Section 115 expired at the end of 2017. A new rate structure was set in January 2018, covering the period from January 1, 2018 through December 31, 2022, by a three judge CRB panel, and we were one of five commercial music service operators (along with Amazon, Apple, Google and Spotify) that participated in rate-setting proceedings that determined these rates (the "Phonorecords III Proceedings"). The Nashville Songwriters Association International, the National Association of Music Publishers and George Johnson Music Publishing are also participating in the Phonorecords III Proceedings. A trial before the CRB concluded in April 2017, and the CRB rendered a decision in January 2018 ("the Initial Determination"). If the Initial Determination is adopted and affirmed, the "all-in" rate that streaming services, including Pandora, will pay to music publishers and songwriters for the mechanical rights and performance rights needed in connection with interactive streaming will increase annually between 2018 and 2022: from 11.4% of revenues or 22.0% of label payments in 2018, to 15.1% of revenues or 26.2% of label payments in 2022. Certain per-subscriber minimum royalty floors also apply depending on the type of service. The CRB may elect to modify the Initial Determination at

the request of the participants in the Phonorecords III Proceedings, and thereafter the final CRB decision may be appealed for review by the DC Circuit Court of Appeals.

~~A majority of~~The Phonorecords III Proceedings are important to us because our listener hours occur on mobile devices and as such, we face challenges in optimizing our advertising products for delivery on mobile and other connected device platforms and monetizing inventory, or opportunities to sell advertisements, generated by listeners using these platforms.direct licenses with music publishers use the Section 115 rates. As a ~~greater share of~~result, increases in the Section 115 rates increase our ~~listener hours is consumed on mobile devices,~~content acquisition costs for our subscription services, which, if such increase were substantial, could materially harm our financial condition and hinder our ability to ~~monetize increased mobile streaming may~~provide interactive features in our services, or cause one or more of our subscription services to not ~~achieve the levels of monetization of streaming we have achieved on computers.~~be economically viable.

Ad-Supported Service

~~In addition, our monetization strategy includes increasing~~Our ad-supported service is monetized through the ~~number~~sale of ~~ad campaigns for computer, mobile~~display, audio and ~~other connected device platforms sold~~video advertisements to national, regional and local advertisers, placing us in more direct competition with broadcast radio for advertiser spending, especially for audio advertisements. Key to the success of our strategy to increase local advertising is our ability to convince a substantial base of local advertisers of the benefits of advertising on the Pandora service, including demonstrating the effectiveness and relevance of our advertising products, in particular audio advertising products, across the range of our delivery platforms.advertisers.

~~Growth in our active users and distribution platforms has fueled a corresponding growth in listener hours.~~ Our total number of listener hours is a key driver for both advertising revenue generation opportunities and content acquisition costs, which are the largest component of our ad-related expenses.

~~Revenue.~~ ~~Listener hours define the number of opportunities we have to sell advertisements, which we refer to as inventory.~~


•	Advertising Revenue. Listener hours define the number of opportunities we have to sell advertisements. Our ability to attract advertisers depends in large part on our ability to offer sufficient inventory within desired demographics.

•

Cost of Revenue—Content Acquisition Costs—Ad-Supported Service. We pay content acquisition costs to the copyright owners and performers, or their agents, of each sound recording that we stream, as well as to the publishers and songwriters, or their agents, for the musical works embodied in each of those sound recordings, subject to certain exclusions. The majority of the content acquisition costs related to our ad-supported service are driven by direct license agreements with major and independent labels and distributors, as discussed above in "Factors Affecting Our Business Model—Content Acquisition Costs". Certain of these license agreements include minimum guarantee payments, some of which are paid in advance.

As a result of the structure of our license agreements, our ability to achieve and sustain profitability and operating leverage on our ad-supported service depends on our ability to ~~offer sufficient inventory within desired demographics. In turn,~~increase our ~~ability to generate~~advertising revenue ~~depends on the extent to which we are able to sell the inventory we have.~~per thousand listener hours ("ad RPM") of streaming through increased advertising revenue across all of our delivery platforms.

Subscription Services

~~Cost of Revenue—Content Acquisition Costs.~~ ~~The number of sound recordings we transmit to~~We monetize our subscription services through subscription payments made by users of the ~~Pandora service, as generally reflected~~services. We drive subscriber growth by ~~listener hours, drives~~providing the world's most powerful music discovery platform, offering a ~~substantial~~personalized experience for each of our listeners, and investing in marketing and free-trials to promote our service.

Our total number of paid subscriptions is a key driver for both subscription revenue and content acquisition costs related to our subscription services, which is the largest component of our subscription-related expenses. In order to drive greater subscription revenue, we must increase the number of new subscribers to our subscription services and minimize the number of current subscribers who discontinue their subscriptions.

•

Subscription Revenue. Our subscription revenue depends upon the number of paid subscriptions we are able to sell and the price that our subscribers pay for those subscriptions. Our ability to attract subscribers depends in large part on our ability to offer features and functionality on our subscription services that are valued by consumers within desired demographics, on terms that are attractive to those consumers, and still enable us to maintain adequate gross margins.

•

Cost of Revenue—Content Acquisition Costs—Subscription Services. We pay content acquisition costs to the copyright owners, performers, songwriters, or their agents, subject to certain exclusions. The majority of our content acquisition costs related to our subscription service are generally driven by direct license agreements with major and independent labels and distributors, PROs and publishers, as discussed above in "Factors Affecting Our Business Model—Content Acquisition Costs". Certain of these license agreements include minimum guarantee payments, some of which are paid in advance.

Given the structure of our license agreements for our subscription services, the majority of our content acquisition costs ~~although historically certain of our licensing agreements required us to pay fees for public performances of musical works based on a percentage of revenue.~~

~~We pay content acquisition costs, or royalties, to the copyright owners~~increase as subscription revenue increases and ~~performers, or their agents, of each sound recording that we stream, as well as to the publishers and songwriters, or their agents, for the musical works embodied in each of those sound recordings,~~are subject to certain exclusions. Royalties for sound recordings are negotiated with and paid to record labels, rights organizations or to SoundExchange, Inc. ("SoundExchange") and Merlin Networks B.V ("Merlin"). Royalties for musical works are most often negotiated with and paid to performing rights organizations (“PROs") such as ASCAP, BMI and SESAC, Inc. (“SESAC”) or directly to publishing companies. Royalties are calculated based on the number of sound recordings streamed, revenue earned or other usage measures.

We stream spoken word comedy content pursuant to a federal statutory license, for which the underlying literary works are not currently entitled to eligibility for licensing by any PRO for the United States. Rather, pursuant to industry-wide custom and practice, this content is performed absent a specific license from any such PRO or the copyright owner of such content. However, we pay royalties to SoundExchange at rates negotiated between representatives of online music services and SoundExchange for the right to stream this spoken word comedy content.

Given the current royalty structures in effect through the end of 2020 with respect to the public performance of sound recordings in the United States, our content acquisition costs increase with each additional listener hour, regardless of whether we are able to generate more revenue.minimum guarantee payments. As such, our ability to achieve and sustain profitability and operating leverage on our subscription services depends on our ability to increase our revenue through

increased paid subscriptions on terms that maintain an adequate gross margin. Refer to our discussion of these matters in Item 1A—"Risk Factors".

Key Metrics

The numbers for our key metrics, which include our listener hours, active users, advertising RPM, advertising licensing costs per ~~hour of streaming through increased advertising~~thousand listener hours ("ad LPM"), paid subscribers, average monthly revenue ~~across all~~per paid subscriber ("ARPU") and average monthly licensing costs per paid subscriber ("LPU") are calculated using internal company data. While these numbers are based on what we believe to be reasonable estimates of our ~~delivery platforms.~~

~~Table~~user base for the applicable period of ~~Contents~~measurement, there are inherent challenges in measuring usage of our products across large online and mobile populations. In addition, we are continually seeking to improve our estimates of our user base, and such estimates may change due to improvements or changes in our methodology.

In the quarter ended December 31, 2016, we ~~expect to substantially increase our investments in our operations to drive anticipated future growth. One of our~~began reporting new key ~~objectives is to be the most powerful music discovery platform, which we believe will strengthen our brand and help us to convince advertisers to allocate spending towards our ad products. As such,~~metrics on a central focus is adding, retaining and engaging listeners to build market share and grow our listener hours. As our business has begun to mature, our revenue growth has begun to exceed the growth in our listener hours. However, we expect to incur increasing annual net losses in the near term because our current strategy is to leverage improvements in gross profit by investing in broadening distribution channels and developing innovative and scalable products. These investments are intended to drive further growth in our business through both increased listener hours and monetization of those hours, andprospective basis as a result ~~we are targeting gradual improvements~~of a change in ~~gross profit over time. Our planned reinvestment~~our service offerings. We discontinued our previous key metrics as of ~~the resulting incremental gross profit will continue to depress the growth~~October 1, 2016. Certain of our ~~profitability.~~

~~We completed four acquisitions in 2015, and we may continue~~new key metrics are not comparable to ~~pursue acquisitions as a means~~prior periods given the lack of expanding our product offerings and technology assets. Our completed and potential acquisitions require extensive management time and capital resources to complete and integrate, and there is no assurance that we will ultimately realize the expected benefitshistory of our ~~acquisitions.~~new service offerings. As such, these metrics have not been presented for, nor compared against, these periods. Key metrics that did not change are presented for the year ended December 31, 2017 and are compared to the results for the year ended December 31, 2016.

~~Key Metrics~~Total Service

~~The below key metrics do not include Ticketfly amounts unless otherwise specifically stated.~~

Listener ~~Hours~~hours

We track listener hours because it is a key indicator of the growth of our ~~business. Beginning with~~business and the ~~listener hours disclosed in this annual report, we are also including~~engagement of our listeners. We include listener hours related to our non-radio content offerings in the definition of listener hours. These offerings include non-music content such as podcasts, as well as custom music content such as Pandora ~~Premiers~~Premieres and artist mixtapes. Historically, listener hours related to non-radio content represented a negligible number of listener hours. Including non-radio content in the listener hours we have previously reported for 2013, 2014 and 2015 would not have changed the reported listener hours for any such period. We calculate listener hours based on the total bytes served for each track that is requested and served from our servers, as measured by our internal analytics systems, whether or not a listener listens to the entire track. For non-music content such as podcasts, episodes are divided into approximately track-length parts, which are treated as tracks under this definition. To the extent that third-party measurements of listener hours are not calculated using a similar server-based approach, the third-party measurements may differ from our measurements. We have implemented strategic hours control mechanisms, such as time outs, to optimize content acquisition costs for our ad-supported listening, and will continue to use these measures in the future.

The table below sets forth ~~our~~the total listener hours for the ~~eleven months~~years ended December 31, ~~2013~~2015, 2016 and ~~the twelve months ended December 31, 2014 and 2015.~~2017.

Eleven Months Ended
December 31, Twelve Months Ended
December 31,
2013 2014 2015
(in billions)
Listener hours 15.31
20.03
21.11



	Year ended December 31,
	2015	2016	2017
Service	Listener hours (in billions)
Advertising	18.47	19.17	16.41
Subscription	2.64	2.79	4.20
Total	21.11	21.96	20.61

Active ~~Users~~users

We track the number of active users as an additional indicator of the breadth of audience we are reaching at a given time. We define active users as the number of distinct registered users, including subscribers that have requested audio from our servers within the trailing 30 days to the end of the final calendar month of the period. The number of active users may overstate the number of unique individuals who actively use our service, ~~within a month~~ as one individual may register for, and use, multiple accounts. Beginning with the active users disclosed in this annual report, we are also including active users who only request non-radio content offerings in the definition of active users. Including users who only request non-radio content in the calculation of active users would not have materially changed the reported active users for 2013, 2014 or 2015.

The table below sets forth our total active users as of December 31, ~~2014~~2016 and ~~2015.~~

~~Table of Contents~~

As of December 31,
2014 2015
(in millions)
Active users 81.5
81.1

We define advertising-based active users (“ad-based active users”) as the number of users, excluding subscribers, that have requested audio from our servers within the trailing 30 days to the end of the final calendar month of the period. We define subscribers as the number of distinct users at the end of the period that have subscribed to our service. Inactive subscribers are included as they contribute towards revenue per thousand listener hours (“RPMs”), which are described in further detail below.

~~The table below sets forth our users on an advertising and subscription basis as of December 31, 2014 and 2015.~~2017.

As of December 31,
2014 2015
User Type Users (in millions)
Ad-based active users 78.5 77.6
Subscribers* 3.6 3.9
Total 82.1 81.5
* Includes subscribers that have not used our service within the trailing 30 days to the end of the final calendar month of the period.



	As of December 31,
	2016	2017
	(in millions)
Active users—all services	81.0	74.7

Advertising-based service

~~The table below sets forth our listener hours on an advertising and subscription basis for the eleven months ended December 31, 2013 and the twelve months ended December 31, 2014 and 2015.~~

Eleven Months Ended
December 31, Twelve Months Ended
December 31,
2013 2014 2015
User Type Listener hours (in billions)
Ad-based active users 13.34 17.58 18.47
Subscribers 1.97 2.45 2.64
Total 15.31 20.03 21.11

Advertising ~~Revenue per Thousand Listener Hours (“ad RPMs”)~~RPM

We track ad ~~RPMs~~RPM for our non-subscription, ad-supported service because it is a key indicator of our ability to monetize advertising inventory created by our listener hours. We focus on ad ~~RPMs~~RPM across all of our delivery platforms. We believe ad ~~RPMs~~RPM to be the central top-line indicator for evaluating the results of our advertising monetization efforts. Ad ~~RPMs are~~RPM is calculated by dividing advertising revenue by the number of thousands of listener hours offor our advertising-based service.

~~Subscription and Other Revenue per Thousand Listener Hours (“subscription RPMs”)~~Advertising LPM

We track ~~subscription RPMs because it is a key indicator of the performance of~~ad LPM for our ~~subscription service. We focus on subscription RPMs~~non-subscription, ad-supported service across all ~~of our~~ delivery platforms. ~~Subscription RPMs are calculated by dividing subscription and other revenue by~~Prior to September 15, 2016, the ~~number of thousands of listener hours of~~content acquisition costs included in our ~~subscription service.~~

~~Total Revenue per Thousand Listener Hours (“total RPMs”)~~

~~We track total RPMs for our service, which includes~~ ad and subscription RPMs, because it is a key indicator of our ability to monetize our listener hours. Total RPMs compare advertising and subscription and other revenue in a given period to total listener hours in the period. We calculate total RPMs by dividing the total revenue by the number of thousands of listener hours.

~~Licensing Costs per Thousand Listener Hours (“LPMs”)~~

~~Table of Contents~~

~~We track LPMs and analyze them in combination with our analysis of RPMs as they provide a key indicator of our profitability. LPMs are~~LPM calculations were relatively fixed, ~~licensing costs~~ with scheduled annual rate ~~increases that drive period-over-period changes in LPMs. As such, the margin on our business varies principally with variances in ad RPMs and subscription RPMs.~~

~~Estimated RPMs and LPMs by Platform~~

~~We also provide estimates of disaggregated ad RPMs, subscription RPMs, total RPMs and related LPMs for our computer platform~~adjustments as ~~well as our mobile and other connected devices platforms, which we calculate by dividing the estimated revenue and costs generated through the respective platforms~~specified by the ~~number~~Section 114 Rates. Subsequent to September 15, 2016, the content acquisition costs included in our ad LPM calculations are based on the rates set by our license agreements with record labels, PROs and music publishers or the Section 114 Rates if we have not entered into a license agreement with the copyright owner of thousands of listener hours of our services delivered through such platforms. While we believe that such disaggregated data provides directional insight for evaluating our efforts to monetize our service, we do not validate such disaggregated data to the level of financial statement reporting. Such data should be seen as indicative only and as management's best estimate.a particular sound recording.

Period-to-period results should not be regarded as precise nor can they be relied upon as indicative of results for future periods. In addition, as our business matures and in response to technological evolutions, we anticipate that the relevant indicators we monitor for evaluating our business may change.

The table below sets forth our ~~RPMs~~RPM and ~~LPMs, including total, computer and mobile and other connected devices, on an ad, subscription and total basis~~LPM for our ad-supported service for the ~~eleven months ended December 31, 2013 and the twelve months ended December 31, 2014 and 2015.~~

Eleven Months Ended
December 31, Twelve Months Ended
December 31,
2013 2014 2015
RPM LPM* RPM LPM* RPM** LPM*
Advertising
Computer $ 56.79
$ 18.94
$ 62.00
$ 20.76
$ 67.99
$ 28.79
Mobile and other connected devices 31.97
18.63
37.84
20.23
47.56
25.68
Total advertising $ 36.70
$ 18.69
$ 41.66
$ 20.31
$ 50.52
$ 26.13

Subscription
Computer $ 52.38
$ 31.83
$ 60.56
$ 33.37
$ 71.75
$ 45.70
Mobile and other connected devices 57.77
33.87
82.25
37.41
86.80
49.18
Total subscription $ 56.27
$ 33.30
$ 76.89
$ 36.41
$ 83.66
$ 48.45

Total
Total computer $ 56.01
$ 21.23
$ 61.74
$ 23.02
$ 68.63
$ 31.68
Total mobile and other connected devices 34.98
20.41
42.77
22.14
52.13
28.42
Total $ 39.22
$ 20.57
$ 45.97
$ 22.28
$ 54.65
$ 28.92

* Under the Pureplay Settlement, we pay per-performance rates for the streaming of sound recordings for our Pandora One subscription service that are higher than the per-performance rates for our non-subscription, ad-supported service.
**The calculation of RPMs does not include revenue generated by Ticketfly or Next Big Sound.

~~Total Ad RPMs~~

~~For the twelve months~~years ended December 31, 2015, 2016 and 2017.



	Year ended December 31,
	2015				2016				2017
	RPM*		LPM		RPM*		LPM		RPM*		LPM
Advertising	$	50.52	$	26.13	$	55.94	$	32.40	$	65.32	$	35.70
*The calculation of RPM does not include revenue generated by Ticketfly or Next Big Sound.

Advertising RPM

For the year ended December 31, 2017 compared to ~~2014, total~~2016, the increase in ad ~~RPMs~~RPM was primarily due to the increase in the number of ads sold per hour, due in part to an increase in the number of audio ads played.

For the year ended December 31, 2016 compared to 2015, ad RPM increased primarily due to anthe increase in ~~ad RPMs on the mobile and other connected devices platform. Ad RPMs on the mobile and other connected devices platform increased as~~ advertising revenue ~~growth outpaced~~outpacing the growth in advertising listener hours as a result of an increase in the average price per ad ~~sold on that platform, due~~sold.

Advertising LPM

Total ad LPMs in ~~part to our increase in relative volume of local ad sales.~~

~~Table of Contents~~

~~For~~ the ~~twelve months~~year ended December 31, ~~2014~~2017 compared to 2016 increased primarily due to rate increases and minimum guarantee accruals related to our direct license agreements with major and independent labels, distributors, PROs and publishers in comparison to the ~~eleven months~~statutory rates used to calculate our content acquisition costs for the majority of the year ended December 31, ~~2013, total~~2016.

Total ad ~~RPMs~~LPM in the year ended December 31, 2016 compared to 2015 increased primarily due to an increase in ad RPMs on the mobile and other connected devices platform. Ad RPMs on the mobile and other connected devices platform increased as advertising revenue growth outpaced the growth in advertising listener hours as a result of an increase in the average price per ad sold on that platform, due in part to our increase in relative volume of local ad sales.

~~Total Subscription RPMs~~

For the twelve months ended December 31, 2015 compared to 2014, total subscription RPMs increased primarily due to an increase in subscription RPMs on the mobile and other connected devices platform. Subscription RPMs on the mobile and other connected devices platform increased as the growth in subscription and other revenue outpaced the growth in subscription listener hours, primarily due to an increase in the average price per subscriber as a result of the increase in the Pandora One pricing structure and an increase in subscribers.

For the twelve months ended December 31, 2014 compared to the eleven months ended December 31, 2013, total subscription RPMs increased as the growth in subscription and other revenue outpaced the growth in subscription listener hours on both the computer and the mobile and other connected devices platforms, primarily due to an increase in the average price per subscriber as a result of the increase in the Pandora One pricing structure. In addition, the changes in subscription RPMs for the twelve months ended December 31, 2014 reflect a $14.2 million increase in subscription revenue in connection with the one-time recognition of the accumulation of deferred revenue related to certain subscriptions purchased through mobile app stores. Refer to “Deferred Revenue” below for further details regarding these mobile subscriptions.

~~Total Ad LPMs~~

~~Total ad LPMs in the twelve months ended December 31, 2015 compared to 2014 increased as the growth in cost of revenue -~~ content acquisition costs ~~outpaced~~subject to the ~~growth~~license agreements for recorded music with major and independent labels, distributors, PROs and publishers that were signed in ~~advertising listener hours. Cost of revenue - content acquisition costs increased~~2015 and 2016. The increase was partially offset by ~~$65.4 million~~one-time cumulative charges in the ~~twelve months~~year ended December 31, 2015 of ~~which~~ $57.9 million ~~was related to a one-time cumulative charge to cost of revenue - content acquisition costs~~ for the pre-1972 sound recordings ~~settlement. In addition, cost of revenue - content acquisition costs increased by $28.2 million in the twelve months ended December 31, 2015, of which~~settlement and $23.9 million ~~was related to a one-time cumulative charge to cost of revenue - content acquisition~~ as a result of ~~our~~management's decision to forgo the application of the RMLC publisher royalty rate from June 2013 to September 2015.

Subscription Services—Total ~~ad LPMs also increased~~

Paid Subscribers

Paid subscribers are defined as the number of distinct users that have current, paid access to our subscription service as of the end of the period. We track paid subscribers because it is a ~~result~~key indicator of ~~scheduled rate increases~~the growth of our subscription services.

The below table sets forth our paid subscribers as of December 31, 2016 and 2017.



	As of December 31,
	2016	2017
	(in millions)
Paid subscribers	4.39	5.48

ARPU and LPU

ARPU is defined as average monthly revenue per paid subscriber on our subscription services. LPU is defined as average monthly licensing costs per paid subscriber on our subscription services. We believe ARPU to be the central top-line indicator for ~~sound recordings paid~~evaluating the results of our monetization efforts on our subscription services. We track LPU because it is a key measure of our ability to ~~SoundExchange.~~

~~Total ad LPMs in~~manage costs for our subscription services. The below table sets forth our ARPU and LPU for our subscription services for the ~~twelve months~~quarters ended December 31, ~~2014 compared to~~2016 and 2017 and the ~~eleven months~~year ended December 31, ~~2013 increased~~2017.



	Quarter ended December 31,		Year ended December 31,
	2016	2017	2016	2017
Subscription ARPU	4.73	6.08	N/A	5.34
Subscription LPU	3.12	4.41	N/A	3.62

Subscription ARPU

For the quarter ended December 31, 2017 compared to 2016, the increase in subscription ARPU is primarily due to ~~scheduled rate increases for sound recording royalties paid~~the increase in subscription revenue outpacing the increase in subscribers due to ~~SoundExchange.~~the fact that Pandora Premium launched in 2017 at a higher price point than Pandora Plus.

~~Total~~

Subscription ~~LPMs~~LPU

~~Total subscription LPMs in~~For the ~~twelve months~~quarter ended December 31, ~~2015~~2017 compared to ~~2014 increased as~~2016, the ~~growth~~increase in ~~cost of revenue -~~subscription LPU was primarily due to an increase in content acquisition costs ~~outpaced the growth in subscription listener hours. Cost of revenue - content acquisition costs increased by $65.4 million in the twelve months ended December 31, 2015, of which $57.9 million was~~associated with Pandora Premium and minimum guarantee accruals related to a one-time cumulative charge to cost of revenue - content acquisition costs for the pre-1972 sound recordings settlement. In addition, cost of revenue - content acquisition costs increased by $28.2 million in the twelve months ended December 31, 2015, of which $23.9 million was related to a one-time cumulative charge to cost of revenue - content acquisition as a result of our decision to forgo the application of the RMLC publisher royalty rate from June 2013 to September 2015. Total subscription LPMs also increased as a result of scheduled rate increases for sound recordings paid to SoundExchange.direct license agreements with major and independent labels, distributors, PROs and publishers.

Total subscription LPMs in the twelve months ended December 31, 2014 compared to the eleven months ended December 31, 2013 increased primarily due to scheduled rate increases for sound recording royalties paid to SoundExchange.

~~Table of Contents~~

Basis of Presentation and Results of Operations

The following table presents our results of operations for the periods indicated as a percentage of total revenue. Our results of operations for the ~~twelve months~~year ended December 31, 2015 include operating results of Ticketfly for the two months ended December 31, 2015. Our results of operations for the year ended December 31, 2017 include operating results of Ticketfly for the period ended September 1, 2017. The period-to-period comparisons of results are not necessarily indicative of results for future periods.


	Eleven Months Ended December 31,		Twelve Months Ended December 31,				Year ended December 31,
	2013		2014		2015		2015		2016		2017
Revenue
Advertising	82	%	80	%	80	%	80	%	77	%	73	%
Subscription and other	18		20		19		19		16		22
Ticketing service	—		—		1		1		6		5
Total revenue	100		100		100		100		100		100
Cost of revenue
Cost of revenue—Content acquisition costs	52		48		52		52		53		55
Cost of revenue—Other(1)	7		7		7
Cost of revenue—Ticketing service(1)	—		—		1
Cost of revenue—Other (1)							7		7		8
Cost of revenue—Ticketing service (1)							1		4		3
Total cost of revenue	59		55		60		60		65		66
Gross profit	41		45		40		40		35		34
Operating expenses
Product development(1)	5		6		7
Sales and marketing(1)	28		30		34
General and administrative(1)	12		12		13
Product development (1)							7		10		11
Sales and marketing (1)							34		35		34
General and administrative (1)							13		13		13
Goodwill impairment							—		—		9
Contract termination fees							—		—		2
Total operating expenses	45		48		55		55		58		68
Loss from operations	(4	)	(3	)	(15	)	(15	)	(23	)	(34	)
Other income (expense), net	—		—		—
Loss before provision for income taxes	(4	)	(3	)	(15	)
Provision for income taxes	—		—		—
Interest expense							—		(2	)	(2	)
Other income, net							—		—		—
Total other expense, net							—		(2	)	(2	)
Loss before (provision for) benefit from income taxes							(15	)	(25	)	(35	)
(Provision for) benefit from income taxes							—		—		—
Net loss	(5	)%	(3	)%	(15	)%	(15	)%	(25	)%	(35	)%
Net loss available to common stockholders							(15	)%	(25	)%	(38	)%



(1) Includes stock-based compensation as follows:
Cost of revenue—Other	0.5	%	0.4	%	0.2	%
Cost of revenue—Ticketing service	—		—		—
Product development	2.0		2.2		2.3
Sales and marketing	4.5		4.2		3.8
General and administrative	2.5		3.1		2.4
Note: Amounts may not recalculate due to rounding

Revenue

(1) Includes stock-based compensation as follows:

Cost of revenue—Other
0.3 % 0.5 % 0.5 %
Cost of revenue—Ticketing service —
—
—
Product development 1.5
1.9
2.0
Sales and marketing 3.4
4.6
4.5
General and administrative 1.5
2.5
2.5
Note: Amounts may not recalculate due to rounding

~~Revenue~~

~~Table of Contents~~


	Eleven Months Ended December 31,		Twelve Months Ended December 31,				Twelve Months Ended December 31,						Year ended December 31,						Year ended December 31,
	2013		2014		$ Change		2014		2015		$ Change		2015		2016		$ Change		2016		2017		$ Change
	(in thousands)						(in thousands)						(in thousands)						(in thousands)
Revenue
Advertising	$	489,340	$	732,338	$	242,998	$	732,338	$	933,305	$	200,967	$	933,305	$	1,072,490	$	139,185	$	1,072,490	$	1,074,927	$	2,437
Subscription and other	110,893		188,464		77,571		188,464		220,571		32,107		220,571		225,786		5,215		225,786		315,853		90,067
Ticketing service	—		—		—		—		10,167		10,167		10,167		86,550		76,383		86,550		76,032		(10,518		)
Total revenue	$	600,233	$	920,802	$	320,569	$	920,802	$	1,164,043	$	243,241	$	1,164,043	$	1,384,826	$	220,783	$	1,384,826	$	1,466,812	$	81,986

Advertising ~~Revenue~~revenue

We generate advertising revenue primarily from audio, display and video advertising, which is typically sold on a cost-per-thousand impressions, or CPM, basis. Advertising campaigns typically range from one to twelve months, and advertisers generally pay us based on the number of delivered impressions or the satisfaction of other criteria, such as click-throughs. We also have arrangements with advertising agencies under which these agencies sell advertising inventory on our service directly to advertisers. We report revenue under these arrangements net of amounts due to agencies.click-through rates. For the ~~eleven months~~years ended December 31, ~~2013~~2015, 2016 and ~~the twelve months ended December 31, 2014 and 2015,~~2017, advertising revenue accounted for ~~82%~~80%, ~~80%~~77% and ~~80%~~73%, of our total revenue, respectively. We expect that advertising will comprise a substantial majority of revenue for the foreseeable future.

For the ~~twelve months~~year ended December 31, ~~2015~~2017 compared to ~~2014,~~2016, advertising revenue increased ~~$201.0~~$2.4 million or ~~27%~~0.2% due to the average price per ad and the number of ads sold remaining relatively flat compared to the prior year.

For the year ended December 31, 2016 compared to 2015, advertising revenue increased by $139.2 million or 15%, primarily due to an ~~approximate 25%~~ increase in the average price per ad sold, due in part to our increase in relative volume of local ad sales and our focus on monetizing mobile inventory, and an approximate 5% increase in the number of ads sold, primarily due to an increase in advertising listener hours.

For the twelve months ended December 31, 2014 compared to the eleven months ended December 31, 2013, advertising revenue increased by $243.0 million or 50%, primarily due to an approximate 25% increase in the average price per ad sold, due in part to our increase in relative volume of local ad sales and our focus on monetizing mobile inventory, and an approximate 15% increase in the number of ads sold, primarily due to an increase in advertising listener hours. In addition, the remaining increase in advertising revenue was due to the twelve months ended December 31, 2014 having one additional month as compared to the eleven months ended December 31, 2013.sold.

Subscription and other revenue

Subscription and other revenue is generated primarily through the sale of ~~Pandora One, a daily,~~ monthly or annual ~~subscription~~subscriptions to Pandora Plus and Pandora Premium. Pandora Plus is a ~~premium~~paid, ad-free version of the Pandora service ~~which currently~~that includes ~~advertisement-free access and~~replays, additional skipping, offline listening, higher quality audio ~~quality~~ on supported ~~devices.~~devices and longer timeout-free listening. Pandora Premium is a paid, ad-free version of the Pandora service that also offers a unique, on-demand experience, providing users with the ability to search, play and collect songs and albums, build playlists on their own or with the tap of a button and automatically generate playlists based on their listening activity. Subscription revenue is recognized on a straight-line basis over the duration of the subscription period. For the ~~eleven months~~years ended December 31, ~~2013~~2015, 2016 and ~~the twelve months ended December 31, 2014 and 2015,~~2017, subscription and other revenue accounted for ~~18%~~19%, ~~20%~~16% and ~~19%~~22% of our total revenue, respectively.

Effective in March 2014, we implemented a change in the pricing structure for Pandora One under which the $36 annual subscription option was eliminated. In addition, effective in May 2014, the monthly pricing option for Pandora One was increased to $4.99 per-month for new subscribers. Existing monthly subscribers who did not lapse maintained the $3.99 per-month pricing structure, and existing annual subscribers who did not lapse were migrated to the $3.99 per-month monthly pricing structure. Effective in December 2014, we reinstated the annual subscription option at $54.89 per year.

For the ~~twelve months~~year ended December 31, ~~2015~~2017 compared to ~~2014,~~2016, subscription revenue increased ~~$32.1~~$90.1 million or ~~17%~~40%, primarily due to an ~~approximate 15%~~increase in the number of subscribers and an increase in the average price per ~~subscription as a result of the change in the Pandora One pricing structure and~~paid subscriber due to the launch and growth of Pandora Premium.

For the year ended December 31, 2016 compared to 2015, subscription and other revenue increased by $5.2 million or 2%, primarily due to an ~~approximate 10%~~ increase in the number of subscribers.

For the twelve months ended December 31, 2014 compared to the eleven months ended December 31, 2013, subscription and other revenue increased by $77.6 million, or 70%, primarily due to an approximate 25% increase in the average price per subscription as a result of the change in the Pandora One pricing structure and due to an approximate 10%

~~Table of Contents~~

increase in the number of subscribers. The increase in subscription revenue for the twelve months ended December 31, 2014 was also due to a $14.2 million increase in subscription revenue in connection with the one-time recognition of the accumulation of deferred revenue related to certain subscriptions purchased through mobile app stores. Refer to “Deferred Revenue” below for further details regarding these mobile subscriptions. In addition, the remaining increase in subscription revenue was due to the twelve months ended December 31, 2014 having one additional month as compared to the eleven months ended December 31, 2013.

Ticketing service

Ticketing service revenue iswas generated primarily from service and merchant processing fees generated on ticket sales through the Ticketfly platform. Ticketfly ~~sells~~sold tickets to fans for events on behalf of clients and ~~charges~~charged either a fee per ticket ~~which generally increases as the face value of the ticket increases,~~ or a percentage of the total convenience charge and order processing fee for its services at the time the ticket for an event iswas sold. Ticketing service revenue iswas recorded net of the face value of the ticket at the time of the sale, as Ticketfly generally ~~acts~~acted as the agent in these transactions. ~~As Ticketfly was acquired on October 31, 2015,~~For the ~~consolidated statements of operations include ticketing service revenue for the two months~~years ended December 31, ~~2015. For the two months ended December 31,~~ 2015, 2016 and 2017, ticketing service revenue accounted for approximately 1%, 6% and 5% of our total ~~revenue. We had no~~revenue, respectively. On September 1, 2017, we completed the sale of Ticketfly to Eventbrite. Ticketing service revenue is included in our Consolidated Statements of Operations for the period from the acquisition date of October 31, 2015 to the disposition date of September 1, 2017. Refer to Note 5 "Dispositions" in the Notes to Consolidated Financial Statements for further details on the Ticketfly disposition.

For the year ended December 31, 2017 compared to 2016, ticketing service revenue decreased $10.5 million or 12%,

primarily due to a decrease in the ~~eleven months ended December 31, 2013 or~~number of tickets sold, excluding box office sales, as a result of the ~~twelve months ended December 31, 2014.~~sale of Ticketfly on September 1, 2017.

Deferred revenue

Our deferred revenue consists ~~principally~~primarily of ~~both~~ prepaid but unrecognized subscription revenue and, to a lesser extent, advertising fees received or billed in advance of the delivery or completion of the delivery of services. Deferred revenue is recognized as revenue when the services are provided and all other revenue recognition criteria have been met.

In addition, subscription revenue derived from sales through certain mobile ~~devices~~device app stores may be subject to refund or cancellation terms which may affect the timing or amount of the subscription revenue recognition. When refund rights exist, we recognize revenue when services have been provided and the rights lapse or when we have developed sufficient transaction history to estimate a return reserve.

We were required to defer revenue for certain subscriptions purchased through mobile app stores that contained refund rights until the refund rights lapsed or until we developed sufficient operating history to estimate a return reserve. As of December 31, 2013, we had deferred all revenue related to these mobile subscriptions subject to refund rights totaling approximately $14.2 million, as we did not have sufficient transaction history to estimate a return reserve. Beginning in January 2014, we had sufficient transaction history that enabled us to estimate future returns. Accordingly, in January 2014, we began recording revenue related to these mobile subscriptions net of estimated returns. This resulted in a one-time increase in subscription revenue in the three months ended March 31, 2014 of approximately $14.2 million, as the previously deferred revenue was recognized. As of December 31, 2015, the deferred revenue related to the return reserve was not significant.

Costs and Expenses

Cost of revenue consists of cost of revenue—content acquisition costs, cost of revenue—other and cost of ~~revenue -~~ revenue—ticketing. Our operating expenses consist of product development, sales and marketing, ~~and~~ general and administrative ~~costs.~~costs, goodwill impairment and contract termination fees. Cost of revenue—content acquisition costs are the ~~most significant~~largest component of our costs and expenses, followed by employee-related costs, which include stock-based compensation expenses. We expect to continue to hire additional employees in order to support our anticipated growth and our product development initiatives. In any particular period, the timing of additional hires could materially affect our cost of revenue and operating expenses, both in absolute dollars and as a percentage of revenue. We anticipate that our costs and expenses will increase in the future.

Cost of revenue—Content ~~Acquisition Costs~~

~~Table of Contents~~

Eleven Months Ended
December 31, Twelve Months Ended
December 31, Twelve Months Ended
December 31,
2013 2014 $ Change 2014 2015 $ Change
(in thousands) (in thousands)
Cost of revenue—Content acquisition costs
$ 314,866
$ 446,377
$ 131,511
$ 446,377
$ 610,362
$ 163,985

~~Content Acquisition Costs as a Percentage of Advertising Revenue by Platform~~acquisition costs

Eleven Months Ended
December 31, Twelve Months Ended
December 31,
2013 2014 2015
Computer 34 % 34 % 41 %
Mobile and other connected devices 58 % 53 % 55 %



	Year ended December 31,						Year ended December 31,
	2015		2016		$ Change		2016		2017		$ Change
	(in thousands)						(in thousands)
Cost of revenue—Content acquisition costs	$	610,362	$	734,353	$	123,991	$	734,353	$	804,032	$	69,679

Cost of ~~revenue—content~~revenue-content acquisition costs ~~principally~~primarily consist of ~~royalties~~licensing fees paid for streaming music or other content to our listeners. ~~Royalties are currently calculated using negotiated rates documented in agreements. The~~In the year ended December 31, 2016, we obtained the rights to stream the majority of sound recordings on our ~~royalties are payable based~~service through statutory licenses, with the costs for such licenses determined according to the per-play rates set by the CRB. We obtained the rights to the majority of the musical works streamed on ~~a fee per public performance of a sound recording, while in other cases~~ our ~~royalties are payable~~service through direct licensing agreements with PROs or publishers, with the costs for such licenses based on a percentage of the content acquisition costs we paid for sound recordings.

During the year ended December 31, 2017, the majority of our content acquisition costs were calculated using negotiated rates in direct license agreements with record labels, music publishers and PROs. Depending on the applicable service, our sound recording license agreements generally require us to pay either a per-performance fee based on the number of sound recordings we transmit, a percentage of revenue associated with the service, or a ~~formula that involves~~per-subscriber minimum amount.

For our ad-supported service, the majority of our content acquisition costs for musical works are based on a ~~combination~~percentage of ~~per performance~~content acquisition costs paid for sound recordings.

For our subscription services, content acquisition costs for musical works are determined in accordance with the statutory license set forth in 17 U.S.C. §115. Certain of our direct license agreements are also subject to minimum guarantee payments, some of which are paid in advance and ~~revenue metrics.~~amortized over the minimum guarantee period. For certain ~~royalty~~content acquisition arrangements, we accrue for estimated ~~royalties~~content acquisition costs based on the available facts and circumstances and adjust these estimates as more information becomes available. ~~The results of any finalized negotiation may be materially different from our estimates.~~For additional information, see above in "Factors Affecting Our Business Model—Content Acquisition Costs".

~~We estimate our advertising-based~~For the year ended December 31, 2017 compared to 2016, content acquisition costs ~~attributable to specific platforms by allocating~~increased $69.7 million or 9%, and total content acquisition costs ~~from royalties payable based on a fee per track to the platform for which the track is served and by allocating costs from royalties based on~~as a percentage of ~~our~~total revenue ~~in accordance~~increased from 53% to 55%. As we entered into direct license agreements with major and independent labels, distributors, PROs and publishers, we experienced rate increases and minimum guarantee accruals as compared to the ~~overall percentage of~~statutory rates used to calculate our ~~revenue estimated to be attributable to such platforms. While we believe that comparing disaggregated~~ content acquisition costs for the majority of the year ended December 31, 2016. These rates particularly impacted our subscription services. As we launched Pandora Premium and ~~revenues across~~experienced growth in our ~~delivery platforms may provide directional insight for evaluating our efforts to monetize our service~~subscription services in 2017, this resulted in a corresponding increase in content acquisition costs as dictated by platform, we do not validate such disaggregated metrics to the level of financial statement reporting. We continue to refine our systems and methodologies used to categorize such metrics across our delivery platforms and the period-to-period comparisons of results are not necessarily indicative of results for future periods.these direct license agreements.

For the ~~twelve months~~year ended December 31, ~~2015~~2016 compared to ~~2014,~~2015, content acquisition costs increased ~~$164.0~~by $124.0 million or ~~37%~~20%, and total content acquisition costs as a percentage of total revenue increased from 52% to 53%, primarily due to ~~an increase of $65.4 million~~rate increases and minimum guarantee accruals related to ~~pre-1972 sound recordings~~our direct license agreements with major and independent labels, distributors, PROs and publishers that went into effect beginning September 2016. The increase was partially offset by one-time cumulative charges in the ~~twelve months~~year ended December 31, 2015 of ~~which~~ $57.9 million ~~was related to a one-time cumulative charge to cost of revenue - content acquisition costs~~ for the pre-1972 sound recordings ~~settlement. In addition, cost of revenue - content acquisition costs increased by $28.2 million related to publisher royalty rate increases in the twelve months ended December 31, 2015, of which~~settlement and $23.9 million ~~was related to a one-time cumulative charge to cost of revenue - content acquisition~~ as a result of ~~our~~management's decision to forgo the application of the RMLC publisher royalty rate from June 2013 to September 2015. Cost of revenue - content acquisition costs also increased due to scheduled sound-recording royalty rate increases of 8%. Content acquisition costs as a percentage of total revenue increased from 48% to 52%, primarily due to the increased royalties related to pre-1972 sound recordings, RMLC publisher royalties and scheduled sound-recording royalty rate increases of 8%, offset by an increase in advertising sales. Estimated content acquisition costs as a percentage of the advertising revenue attributable to our computer platform increased from 34% to 41%, and estimated content acquisition costs as a percentage of the advertising revenue attributable to our mobile and other connected devices platform increased from 53% to 55%, in each case primarily due to the increased royalties related to the pre-1972 sound recordings settlement, RMLC publisher royalties and scheduled sound-recording royalty rate increases of 8%, offset by an increase in advertising sales on both the computer and mobile and other connected devices platforms.

For the twelve months ended December 31, 2014 compared to the eleven months ended December 31, 2013, content acquisition costs increased by $131.5 million or 42%, primarily due to an approximate 20% increase in listener hours and scheduled sound-recording royalty rate increases of 8%. In addition, the remaining increase in content acquisition costs was due to the twelve months ended December 31, 2014 having one additional month as compared to the eleven months ended December 31, 2013. Content acquisition costs as a percentage of total revenue decreased from 52% to 48%, primarily due to an increase in advertising revenue and a $14.2 million increase in subscription revenue in connection with the one-time recognition of the accumulation of deferred revenue related to certain subscriptions purchased through mobile app stores. Refer to “Deferred Revenue” above for further details regarding these mobile subscriptions. Estimated content acquisition costs as a

~~Table of Contents~~

percentage of the advertising revenue attributable to our computer platform were 34% in both the eleven months ended December 31, 2013 and the twelve months ended December 31, 2014, primarily due to an increase in advertising revenue on the computer platform as a result of an increase in the average price per ad sold, offset by scheduled rate increases. Estimated content acquisition costs as a percentage of the advertising revenue attributable to our mobile and other connected devices platform decreased from 58% to 53%, primarily due to an increase in advertising revenue on the mobile and other connected devices platform as a result of an increase in the average price per ad sold and an increase in the number of ads sold. The decrease in estimated content acquisition costs as a percentage of the advertising revenue attributable to our mobile and other connected devices platform was also due to the effect of measures we have adopted to manage the growth of mobile content acquisition costs while minimizing adverse effects on the listener experience, such as adjusting the number of times users can skip songs during a given listening session, as well as optimizing time-based thresholds whereby music will stop playing after a certain length of user inactivity with the service, partially offset by scheduled rate increases.

Cost of Revenue—Other

Eleven Months Ended
December 31, Twelve Months Ended
December 31, Twelve Months Ended
December 31,
2013 2014 $ Change 2014 2015 $ Change
(in thousands) (in thousands)
Cost of revenue—Other $ 42,217
$ 61,627
$ 19,410
$ 61,627
$ 79,858
$ 18,231



	Year ended December 31,						Year ended December 31,
	2015		2016		$ Change		2016		2017		$ Change
	(in thousands)						(in thousands)
Cost of revenue—Other	$	79,972	$	102,717	$	22,745	$	102,717	$	112,638	$	9,921

Cost of revenue—other consists primarily of ad and music serving costs, employee-related ~~and~~costs, facilities and equipment costs, ~~and~~ other costs of ad ~~sales.~~sales and amortization expense related to acquired intangible assets and internal-use software. In the year ended December 31, 2017 we reallocated headcount from cost of revenue—other to other financial statement line items due to a reorganization of the company as a result of a reallocation of resources. Ad and music serving costs consist of content streaming, maintaining our ~~internet~~streaming radio ~~service~~and on-demand subscription services and creating and serving advertisements through third-party ad servers. We make payments to third-party ad servers for the period the advertising impressions are delivered or click-through actions occur, and accordingly, we record this as a cost of revenue in the related period. Employee-related costs include salaries and benefits associated with supporting music and ~~ad serving~~ad-serving functions. Other costs of ad sales include costs related to music events that are ~~sold~~included as part of certain of our advertising arrangements.

For the ~~twelve months~~year ended December 31, ~~2015~~2017 compared to ~~2014,~~2016, cost of revenue—other increased ~~$18.2~~$9.9 million or ~~30%~~10%, primarily due to an ~~$11.3~~$11.2 million increase in amortization expense of internal-use software and acquired intangible assets related to the launch of Pandora Premium, a $5.0 million increase in other cost of ad sales and ~~music~~a $4.8 million increase in hosting and ad serving costs driven by an increase in ~~impressions served~~the cost of ad sales. The increase is offset by an $11.6 million decrease in employee-related costs driven by a decrease in average headcount related to a reorganization of the company as a result of a reallocation of resources and a ~~$6.7 million increase~~reduction in ~~employee-related and facilities and equipment costs, which were driven by an approximate 75% increase~~force in ~~headcount.~~the first quarter of 2017.

For the ~~twelve months~~year ended December 31, ~~2014~~2016 compared to ~~the eleven months ended December 31, 2013,~~2015, cost of revenue—other increased by ~~$19.4~~$22.7 million or ~~46%~~28%, primarily due to a ~~$7.3~~$6.0 million increase in employee-related expenses and a $3.3 million increase in facilities and equipment ~~costs, which were driven by an approximate 20% increase in headcount, a $4.2 million increase in ad and music serving~~ costs driven by an increase in ~~impressions served and~~average headcount, a ~~$2.3~~$7.4 million increase in ~~other~~hosting and ad-serving costs and a $3.0 million increase in cost of ad sales driven by an increase in the number of ads sold, a $1.7 million increase in amortization expense of internal-use software and a $1.1 million increase in costs related to music events that are sold as part of our advertising arrangements. In addition, the remaining increase in cost of revenue—other was due to the twelve months ended December 31, 2014 having one additional month as compared to the eleven months ended December 31, 2013.

Cost of ~~Revenue - Ticketing Service~~revenue—ticketing service

Eleven Months Ended
December 31, Twelve Months Ended
December 31, Twelve Months Ended
December 31,
2013 2014 $ Change 2014 2015 $ Change
(in thousands) (in thousands)
Cost of revenue—Ticketing service $ —
$ —
$ —
$ —
$ 7,121
$ 7,121



	Year ended December 31,						Year ended December 31,
	2015		2016		$ Change		2016		2017		$ Change
	(in thousands)						(in thousands)
Cost of revenue—Ticketing service	$	7,121	$	59,280	$	52,159	$	59,280	$	50,397	$	(8,883	)

Cost of revenue—ticketing service consists primarily of ticketing revenue share costs, hosting costs, credit card fees and other cost of revenue and intangible amortization expense. The majority of these costs are related to revenue share costs which consist of ~~royalties~~fees paid to clients for their share of convenience and order processing fees. Intangible amortization expense is related to amortization of developed technology acquired in connection with the Ticketfly ~~acquisition.~~acquisition on October 1, 2015. On September 1, 2017, we completed the sale of Ticketfly to Eventbrite. Cost of revenue—ticketing service is included in our Consolidated Statements of Operations for the period from the acquisition date of October 31, 2015 to the disposition date of

September 1, 2017. Refer to Note 5 "Dispositions" in the Notes to Consolidated Financial Statements for further details on the Ticketfly disposition.

~~Table of Contents~~

For the ~~two months~~year ended December 31, ~~2015,~~2017 compared to 2016, cost of revenue—ticketing service ~~was $7.1~~decreased $8.9 million ~~and consisted~~or 15%, primarily due to the sale of ~~$4.4 million in revenue share costs, $1.7 million in credit card fees and other cost of revenue and $1.0 million in intangible amortization of developed technology.~~Ticketfly on September 1, 2017.

Gross ~~Profit~~margin


	Eleven Months Ended December 31,			Twelve Months Ended December 31,					Twelve Months Ended December 31,								Year ended December 31,								Year ended December 31,
	2013			2014			$ Change		2014			2015			$ Change		2015			2016			$ Change		2016			2017			$ Change
	(in thousands)								(in thousands)								(in thousands)								(in thousands)
Gross profit
Total revenue	$	600,233		$	920,802		$	320,569	$	920,802		$	1,164,043		$	243,241	$	1,164,043		$	1,384,826		$	220,783	$	1,384,826		$	1,466,812		$	81,986
Total cost of revenue	357,083			508,004			150,921		508,004			697,341			189,337		697,455			896,350			198,895		896,350			967,067			70,717
Gross profit	$	243,150		$	412,798		$	169,648	$	412,798		$	466,702		$	53,904	$	466,588		$	488,476		$	21,888	$	488,476		$	499,745		$	11,269
Gross margin	41		%	45		%			45		%	40		%			40		%	35		%			35		%	34		%

~~108~~

~~Table of Contents~~



Signature	Title	Date

/s/ ~~BRIAN MCANDREWS~~ROGER LYNCH	~~Chief Executive Officer, President and Chairman of the Board (Principal Executive Officer)~~	February ~~18, 2016~~26, 2018
~~Brian McAndrews~~Roger Lynch	President, Chief Executive Officer (Principal Executive Officer) and Director

/s/ ~~MICHAEL S. HERRING~~NAVEEN CHOPRA		February 26, 2018
Naveen Chopra	Chief Financial Officer (Principal Financial ~~and Accounting~~ Officer)	~~February 18, 2016~~
~~Michael S. Herring~~

/s/ ~~PETER CHERNIN~~KAREN WALKER	~~Director~~	February ~~18, 2016~~26, 2018
~~Peter Chernin~~Karen Walker	Chief Accounting Officer (Principal Accounting Officer)

/s/ GREGORY B. MAFFEI		February 26, 2018
Gregory B. Maffei	Director

/s/ ROGER FAXON	~~Director~~	February ~~18, 2016~~26, 2018
Roger Faxon	Director

		February 26, 2018
~~/s/ JAMES M. P. FEUILLE~~David J. Frear	Director	~~February 18, 2016~~
~~James M. P. Feuille~~
		February 26, 2018
~~/s/ PETER GOTCHER~~Jason Hirschhorn	Director	~~February 18, 2016~~
~~Peter Gotcher~~

/s/ TIMOTHY LEIWEKE	~~Director~~	February ~~18, 2016~~26, 2018
Timothy Leiweke	Director

/s/ MICHAEL M. LYNTON		February 26, 2018
Michael M. Lynton	Director
~~Elizabeth A. Nelson~~
/s/ JAMES E. MEYER		February 26, 2018
James E. Meyer	Director

/s/ MICKIE ROSEN	~~Director~~	February ~~18, 2016~~26, 2018
Mickie Rosen	Director

EXHIBIT INDEX

Incorporated by Reference

Exhibit

No.

Exhibit Description

Form

File No.

Exhibit

Filing

Date

Filed By

Filed

Herewith

2.01

Agreement and Plan of Merger, dated as of October 7, 2015, among the Company, Ticketfly, Inc., Tennessee Acquisition Sub I, Inc., Tennessee Acquisition Sub II, LLC and Shareholder Representative Services LLC

8-K/A

001-35198

2.1

10/8/2015

2.02

Asset Purchase Agreement, dated as of November 16, 2015, by and between Pandora Media, Inc. and Rdio, Inc.

10-K

001-35198

2.02

2/18/2016

3.01

Amended and Restated Certificate of Incorporation

S-1/A

333-172215

3.1

5/4/2011

3.02

Certificate of Amendment to the Amended and Restated Certificate of Incorporation

10-Q

001-35198

3.02

7/26/2016

3.03

Amended and Restated Bylaws

3.04

Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock

8-K

001-35198

3.1

6/14/2017

4.01

Fifth Amended and Restated Investor Rights Agreement, by and among Pandora Media, Inc. and the investors listed on Exhibit A thereto, dated May 20, 2010, as amended

S-1/A

333-172215

4.2

2/22/2011

4.02

Indenture, dated as of December 9, 2015, between Pandora Media, Inc. and Citibank, N.A., as Trustee

8-K

001-35198

4.1

12/9/2015

4.03

Form of 1.75% Convertible Senior Note due 2020 (included in Exhibit 4.02)

10.01†

2011 Equity Incentive Plan and Form of Stock Option Agreement under 2011 Equity Incentive Plan

S-1/A

333-172215

10.1

5/26/2011

10.02†

Amendment No. 1 to the 2011 Equity Incentive Plan

S-8

333-216087

99.2

2/16/2017

10.03†

2004 Stock Plan, as amended, and Forms of Stock Option Agreement and Restricted Stock Purchase Agreement under 2004 Stock Plan

S-1/A

333-172215

10.3

2/22/2011

10.04†

2000 Stock Incentive Plan, as amended, and Forms of NSO Stock Option Agreement and ISO Stock Option Agreement under 2000 Stock Plan

S-1/A

333-172215

10.4

2/22/2011

10.05†

Amended and Restated 2014 Employee Stock Purchase Plan

8-K

001-35198

10.1

8/9/2017

10.06†

Form of Indemnification Agreement by and between Pandora Media, Inc. and each of its executive officers and its directors not affiliated with an investment fund

S-1/A

333-172215

10.5

2/22/2011

10.07†

Form of Indemnification Agreement by and between Pandora Media, Inc. and each of its directors affiliated with an investment fund

S-1/A

333-172215

10.5A

2/22/2011

10.08†

Offer Letter with John Trimble, dated February 18, 2009

S-1/A

333-172215

10.10

2/22/2011

10.09

Office Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated July 23, 2009

S-1/A

333-172215

10.12

2/22/2011

10.10A

First Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated April 13, 2010

S-1/A

333-172215

10.12A

2/22/2011

10.10B

Second Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated June 16, 2010

S-1/A

333-172215

10.12B

2/22/2011

10.10C

Third Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated December 15, 2010

10-Q

001-35198

10.12C

9/4/2012

10.10D

Fourth Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated March 10, 2011

10-Q

001-35198

10.12D

9/4/2012

10.10E

Fifth Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated July 1, 2011

10-Q

001-35198

10.12E

9/4/2012

10.10F

Sixth Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated September 27, 2011

10-Q

001-35198

10.12F

9/4/2012

~~/s/ TIM WESTERGREN~~

10.10G

Seventh Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated July 12, 2012

10-Q

~~Director~~001-35198

~~February 18, 2016~~10.12G

9/4/2012

10.10H

Eighth Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated February 1, 2013

10-Q

001-35198

10.12H

5/29/2013

10.11I

Ninth Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated August 15, 2013

10-Q

001-35198

10.12I

10/28/2014

10.10J

Tenth Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated October 1, 2014

10-Q

001-35198

10.12J

10/28/2014

10.11K

Sublease between Cerexa, Inc. and Pandora Media, Inc. dated January 1, 2015

10-K

001-35198

10.10K

2/11/2015

10.10L

Eleventh Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated July 28, 2015*

10-K

001-35198

10.10M

2/18/2016

10.10M

Twelfth Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated January 11, 2017

10-Q

001-35198

10.01

5/9/2017

10.11†

Form of Restricted Stock Unit Agreement under the 2011 Equity Incentive Plan

10-Q

001-35198

10.01

9/2/2011

10.12†

Form of MSU Grant Notice and Award Agreement

10-Q

001-35198

10.28

4/27/2015

10.13†

Form of Performance Award Agreement under the 2011 Equity Incentive Plan

10-Q

001-35198

10.01

7/26/2016

10.14†

Form of Retention Restricted Stock Unit Agreement under the 2011 Equity Incentive Plan

10.15†

Amended and Restated Executive Severance and Change of Control Policy

10-Q

001-35198

10.04

11/2/2017

10.16†

Amended and Restated 2016 Corporate Incentive Plan

10-K

001-35198

10.19A

2/16/2017

10.17†

2017 Corporate Incentive Plan

10-Q

001-35198

10.02

5/9/2017

10.18†

Offer Letter with Stephen Bené, dated October 14, 2014

10-Q

001-35198

10.26

4/27/2015

10.19†

Offer Letter with Christopher Phillips, dated October 20, 2014

10-Q

001-35198

10.27

4/27/2015

10.20†

Offer Letter with David Gerbitz, dated June 3, 2014

10-Q

001-35198

10.04

5/9/2017

10.21†

Severance and Release Agreement between Sara Clemens and Pandora Media, Inc., dated January 12, 2017

10-Q

001-35198

10.03

5/9/2017

10.22†

Offer Letter with Naveen Chopra, dated February 27, 2017

10-Q

001-35198

10.05

5/9/2017

10.23†

Separation Agreement and General Release between Tim Westergren and Pandora Media, Inc., dated July 15, 2017

10-Q

001-35198

10.01

11/2/2017

10.24†

First Amendment to Offer Letter with Naveen Chopra, dated August 7, 2017

10-Q

001-35198

10.02

11/2/2017

10.25†

Restricted Stock Unit Agreement under the 2011 Equity Incentive Plan between Naveen Chopra and Pandora Media, Inc., dated August 7, 2017

10-Q

001-35198

10.03

11/2/2017

10.26†

Offer Letter with Roger Lynch, dated August 9, 2017

10-Q

001-35198

10.05

11/2/2017

10.27†

Separation Agreement and General Release between Michael Herring and Pandora Media, Inc., dated August 15, 2017

10-Q

001-35198

10.06

11/2/2017



10.28†	Restricted Stock Unit Agreement under the 2011 Equity Incentive Plan between Roger Lynch and Pandora Media, Inc., dated September 18, 2017	10-Q	001-35198	10.08	11/2/2017
10.29†	Restricted Stock Unit Agreement under the 2011 Equity Incentive Plan between Roger Lynch and Pandora Media, Inc., dated September 18, 2017	10-Q	001-35198	10.09	11/2/2017
10.30†	Option Agreement under the 2011 Equity Incentive Plan between Roger Lynch and Pandora Media, Inc., dated September 18, 2017	10-Q	001-35198	10.10	11/2/2017
10.31	Capped call transaction confirmation, dated as of December 3, 2015, by and between Morgan Stanley & Co. LLC and Pandora Media, Inc.	8-K	001-35198	10.1	12/9/2015
10.32	Additional capped call transaction confirmation, dated as of December 4, 2015, by and between Morgan Stanley & Co. LLC and Pandora Media, Inc.	8-K	001-35198	10.2	12/9/2015
10.33	Capped call transaction confirmation, dated as of December 3, 2015, by and between JPMorgan Chase Bank, National Association, London Branch and Pandora Media, Inc.	8-K	001-35198	10.3	12/9/2015
10.34	Additional capped call transaction confirmation, dated as of December 4, 2015, by and between JPMorgan Chase Bank, National Association, London Branch and Pandora Media, Inc.	8-K	001-35198	10.4	12/9/2015
10.35	Investment Agreement dated as of May 8, 2017, by and among Pandora Media, Inc., KKR Classic Investors LLC and the other purchasers listed on the signature pages thereto	8-K	001-35198	10.1	5/12/2017
10.36	First Amendment to Investment Agreement, dated as of June 8, 2017, by and between Pandora Media, Inc. and KKR Classic Investors L.P.	8-K	001-35198	10.1	6/14/2017
10.37	Notice of Termination, dated as of June 9, 2017	8-K	001-35198	10.2	6/14/2017
10.38	Investment Agreement, dated as of June 9, 2017, by and between Pandora Media, Inc. and Sirius XM Radio Inc.	8-K	001-35198	10.3	6/14/2017
10.39	Registration Rights Agreement, dated as of June 9, 2017, by and between Pandora Media, Inc. and Sirius XM Radio Inc.	8-K	001-35198	10.4	6/14/2017
10.40	Membership Interest Purchase Agreement, dated as of June 9, 2017 by and among Eventbrite, Inc., Pandora Media, Inc., and Ticketfly, LLC	8-K	001-35198	10.5	6/14/2017
10.41	Amendment No. 1 to Membership Interest Purchase Agreement, dated as of June 9, 2017 by and among Eventbrite, Inc., Pandora Media, Inc., and Ticketfly, LLC, dated September 1, 2017	10-Q	001-35198	10.07	11/2/2017
10.42*	Credit Agreement, by and among the Company and Pandora Media California, LLC, the lenders party thereto, Wells Fargo Bank, National Association, as Administrative Agent, and JPMorgan Chase Bank, N.A., Morgan Stanley Senior Funding, Inc. and Wells Fargo Bank, National Association as joint lead arrangers and joint book runners, dated as of December 29, 2017					X
23.01	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm					X
24.01	Power of Attorney (included on signature page of this Annual Report on Form 10-K)					X
31.01	Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act					X
31.02	Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act					X
32.01	Certification of the Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act					X

~~109~~

~~Table of Contents~~

~~EXHIBIT INDEX~~

Incorporated by Reference
Exhibit
No.
Exhibit Description Form File No. Exhibit
Filing
Date
Filed By
Filed
Herewith
2.01
Agreement and Plan of Merger, dated as of October 7, 2015, among the Company, Ticketfly, Inc., Tennessee Acquisition Sub I, Inc., Tennessee Acquisition Sub II, LLC and Shareholder Representative Services LLC 8-K/A 001-35198 2.1 10/8/2015
2.02
Asset Purchase Agreement, dated as of November 16, 2015, by and between Pandora Media, Inc. and Rdio, Inc. X
3.01
Amended and Restated Certificate of Incorporation S-1/A 333-172215 3.1 5/4/2011
3.02
Amended and Restated Bylaws S-1/A 333-172215 3.2 5/4/2011
4.01
Fifth Amended and Restated Investor Rights Agreement, by and among Pandora Media, Inc. and the investors listed on Exhibit A thereto, dated May 20, 2010, as amended S-1/A 333-172215 4.2 2/22/2011
4.02
Indenture, dated as of December 9, 2015, between Pandora Media, Inc. and Citibank, N.A., as Trustee 8-K 001-35198 4.1 12/9/2015
4.03
Form of 1.75% Convertible Senior Note due 2020 (included in Exhibit 4.02)
10.01†
2011 Long Term Incentive Plan and Form of Stock Option Agreement under 2011 Long Term Incentive Plan S-1/A 333-172215 10.1 5/26/2011
10.02†
Ticketfly, Inc. 2008 Stock Plan S-8 333-208005 99.1 11/13/2015
10.03†
2004 Stock Plan, as amended, and Forms of Stock Option Agreement and Restricted Stock Purchase Agreement under 2004 Stock Plan S-1/A 333-172215 10.3 2/22/2011
10.04†
2000 Stock Incentive Plan, as amended, and Forms of NSO Stock Option Agreement and ISO Stock Option Agreement under 2000 Stock Plan S-1/A 333-172215 10.4 2/22/2011
10.05†
Form of Indemnification Agreement by and between Pandora Media, Inc. and each of its executive officers and its directors not affiliated with an investment fund S-1/A 333-172215 10.5 2/22/2011
10.06†
Form of Indemnification Agreement by and between Pandora Media, Inc. and each of its directors affiliated with an investment fund S-1/A 333-172215 10.5A 2/22/2011
10.7†
Employment Agreement with Tim Westergren, dated April 28, 2004 S-1/A 333-172215 10.7 2/22/2011
10.9†
Offer Letter with John Trimble, dated February 18, 2009 S-1/A 333-172215 10.1 2/22/2011
10.10
Office Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated July 23, 2009 S-1/A 333-172215 10.12 2/22/2011
10.10A
First Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated April 13, 2010 S-1/A 333-172215 10.12A 2/22/2011
10.10B
Second Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated June 16, 2010 S-1/A 333-172215 10.12B 2/22/2011
10.10C
Third Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated December 15, 2010 10-Q 001-35198 10.12C 9/4/2012
10.10D
Fourth Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated March 10, 2011 10-Q 001-35198 10.12D 9/4/2012
10.10E
Fifth Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated July 1, 2011 10-Q 001-35198 10.12E 9/4/2012

~~110~~

~~Table of Contents~~

10.10F
Sixth Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated September 27, 2011 10-Q 001-35198 10.12F 9/4/2012
10.10G
Seventh Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated July 12, 2012 10-Q 001-35198 10.12G 9/4/2012
10.10H
Eighth Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated February 1, 2013 10-Q 001-35198 10.12H 5/29/2013
10.10I
Ninth Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated August 15, 2013 10-Q 001-35198 10.12I 10/28/2014
10.10J
Tenth Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated October 1, 2014 10-Q 001-35198 10.12J 10/28/2014
10.10K
Sublease between Cerexa, Inc. and Pandora Media, Inc. dated January 1, 2015 10-K 001-35198 10.10K 2/11/2015
10.10L
First Lease Modification and Term Extension and Additional Space Agreement between 125 Park Owner LLC and Pandora Media, Inc., dated July 22, 2015 10-Q 001-35198 10.10L 7/24/2015
10.10M
Eleventh Amendment to Lease between CIM/Oakland Center 21, LP and Pandora Media, Inc., dated July 28, 2015* X
10.12
License Agreement by and between SESAC and Pandora Media, Inc., dated July 1, 2007 S-1/A 333-172215 10.14 2/22/2011
10.13
Credit Agreement among Pandora Media, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A. as Administrative Agent, dated as of May 13, 2011 S-1/A 333-172215 10.17 6/10/2011
10.13A
Amendment and Restatement Agreement to Credit Agreement among Pandora Media, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A. as Administrative Agent, dated as of September 12, 2013 10-Q 001-35198 10.15 11/26/2013
10.13B
Amendment No. 1 to Credit Agreement, as amended and restated as of September 12, 2013, among Pandora Media, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A. as Administrative Agent, dated as of December 2, 2015 X
10.13C
Amendment and Restatement Agreement to Credit Agreement, as previously amended and restated as of September 12, 2013, among Pandora Media, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A. as Administrative Agent, dated as of December 21, 2015 X
10.14†
Form of Restricted Stock Unit Agreement under the 2011 Equity Incentive Plan 10-Q 001-35198 10.01 9/2/2011
10.15†
Amended Executive Severance and Change in Control Policy 10-K 001-35198 10.18 3/19/2012
10.16†
Offer Letter with Simon Fleming-Wood, dated August 5, 2012 10-Q 001-35198 10.19 6/4/2012
10.17†
Calendar 2014 Corporate Incentive Plan 10-Q 001-35198 10.19C 4/29/2014
10.18†
2015 Corporate Incentive Plan 10-Q 001-35198 10.17D 4/27/2015
10.20†
Australian Form of Restricted Stock Unit Agreement under the 2011 Equity Incentive Plan 10-K 001-35198 10.22 3/18/2013
10.21†
Offer Letter with Michael Herring, dated December 21, 2012 10-K 001-35198 10.23 3/18/2013
10.22†
New Zealand Form of Restricted Stock Unit Agreement under the 2011 Equity Incentive Plan 10-Q 001-35198 10.24 5/29/2013
10.23†
Offer Letter with Brian McAndrews, dated September 11, 2013 10-Q 001-35198 10.25 11/26/2013
10.24†
2014 Employee Stock Purchase Plan S-8 333-193612 99.2 1/28/2014

~~111~~

~~Table of Contents~~

10.25†
Offer Letter with Sara Clemens, dated January 22, 2014 10-Q 001-35198 10.25 4/27/2015
10.26†
Offer Letter with Stephen Bené, dated October 14, 2014 10-Q 001-35198 10.26 4/27/2015
10.27†
Offer Letter with Christopher Phillips, dated October 20, 2014 10-Q 001-35198 10.27 4/27/2015
10.28†
Form of MSU Grant Notice and Award Agreement 10-Q 001-35198 10.28 4/27/2015
10.29
Settlement Agreement by and among Pandora Media, Inc. and Capitol Records, LLC et al.** 10-Q 001-35198 10.29 10/26/2015
10.30
Capped call transaction confirmation, dated as of December 3, 2015, by and between Morgan Stanley & Co. LLC and Pandora Media, Inc. 8-K 001-35198 10.1 12/9/2015
10.31
Additional capped call transaction confirmation, dated as of December 4, 2015, by and between Morgan Stanley & Co. LLC and Pandora Media, Inc. 8-K 001-35198 10.2 12/9/2015
10.32
Capped call transaction confirmation, dated as of December 3, 2015, by and between JPMorgan Chase Bank, National Association, London Branch and Pandora Media, Inc. 8-K 001-35198 10.3 12/9/2015
10.33
Additional capped call transaction confirmation, dated as of December 4, 2015, by and between JPMorgan Chase Bank, National Association, London Branch and Pandora Media, Inc. 8-K 001-35198 10.4 12/9/2015
23.01
Consent of Independent Registered Public Accounting Firm X
24.01
Power of Attorney (included on signature page of this Annual Report on Form 10-K) X
31.01
Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act X
31.02
Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act X
32.01
Certification of the Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act X
101
Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Balance Sheets as of December 31, 2015 and December 31, 2014, (ii) Statements of Operations for the Twelve months ended December 31, 2015 and 2014 and the Eleven months ended December 31, 2013, (iii) Statements of Comprehensive Loss for the Twelve months ended December 31, 2015 and 2014 and the Eleven months Ended December 31, 2013, (iv) Statements of Cash Flows for the Twelve months ended December 31, 2015 and 2014 and the Eleven months ended December 31, 2013 and (v) Notes to Financial Statements X
†
Indicates management contract or compensatory plan.
*
Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished on a supplemental basis to the Securities and Exchange Commission upon request; provided, however that we may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedules or exhibits so furnished.

**
Confidential treatment requested as to certain portions of this exhibit, which portions have been omitted and submitted separately to the Securities and Exchange Commission.

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH

XBRL Taxonomy Schema Linkbase Document

101.CAL

XBRL Taxonomy Calculation Linkbase Document

101.DEF

XBRL Taxonomy Definition Linkbase Document

101.LAB

XBRL Taxonomy Labels Linkbase Document

101.PRE

XBRL Taxonomy Presentation Linkbase Document

†

Indicates management contract or compensatory plan.

Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished on a supplemental basis to the Securities and Exchange Commission upon request; provided, however that we may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedules or exhibits so furnished.

Confidential treatment requested as to certain portions of this exhibit, which portions have been omitted and submitted separately to the Securities and Exchange Commission.

~~112~~115



Delaware	94-3352630
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2101 Webster Street, Suite 1650 Oakland, CA	94612
(Address of principal executive offices)	(Zip Code)



Title of each class	Name of each exchange on which registered
Common stock, $0.0001 par value	The New York Stock Exchange



Large accelerated filer x	Accelerated filer o
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)	Emerging growth company o



		Page No.

	PART I
Item 1	Business	2
Item 1A	Risk Factors	1311
Item 1B	Unresolved Staff Comments	3635
Item 2	Properties	3635
Item 3	Legal Proceedings	3635
Item 4	Mine Safety Disclosures	3635

	PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	3736
Item 6	Selected Financial Data	3938
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4140
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	6361
Item 8	Financial Statements and Supplementary Data	6462
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	~~104~~106
Item 9A	Controls and Procedures	~~104~~106
Item 9B	Other Information	~~105~~107

	PART III
Item 10	Directors, Executive Officers and Corporate Governance	~~106~~108
Item 11	Executive Compensation	~~106~~108
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~106~~108
Item 13	Certain Relationships and Related Transactions and Director Independence	~~106~~108
Item 14	Principal Accountant Fees and Services	~~106~~108

	PART IV
Item 15	Exhibits, Financial Statement Schedules	~~107~~109
Signatures		~~108~~110



Per-performance Rate	Non-subscription		Subscription		Blended*
"Web IV Rate" Decision for 2016	$	0.00170	$	0.00220	$	0.00176
“Pureplay Rate” for 2015**	$	0.00140	$	0.00250	$	0.00153
Pandora’s projected blended rate for 2016. *In 2015, the “Web III” rate set by the CRB, which Pandora opted out of via the Pureplay Settlement, was $0.0023.



	High		Low
Twelve Months Ended December 31, 2015
First quarter (January 1, 2015 - March 31, 2015)	$	18.52	$	14.63
Second quarter (April 1, 2015 - June 30, 2015)	$	19.02	$	15.54
Third quarter (July 1, 2015 - September 30, 2015)	$	21.34	$	13.81
Fourth quarter (October 1, 2015 - December 31, 2015)	$	21.98	$	11.51

Twelve Months Ended December 31, 2014
First quarter (January 1, 2014 - March 31, 2014)	$	39.43	$	26.76
Second quarter (April 1, 2014 - June 30, 2014)	$	31.74	$	22.17
Third quarter (July 1, 2014 - September 30, 2014)	$	29.82	$	24.16
Fourth quarter (October 1, 2014 - December 31, 2014)	$	24.70	$	16.90



	High		Low
Year ended December 31, 2017
First quarter (January 1, 2017 - March 31, 2017)	$	13.58	$	11.48
Second quarter (April 1, 2017 - June 30, 2017)	$	11.98	$	6.91
Third quarter (July 1, 2017 - September 30, 2017)	$	9.83	$	7.69
Fourth quarter (October 1, 2017 - December 31, 2017)	$	8.19	$	4.49

Year Ended December 31, 2016
First quarter (January 1, 2016 - March 31, 2016)	$	12.25	$	7.88
Second quarter (April 1, 2016 - June 30, 2016)	$	12.52	$	8.17
Third quarter (July 1, 2016 - September 30, 2016)	$	14.63	$	12.00
Fourth quarter (October 1, 2016 - December 31, 2016)	$	14.77	$	10.42



	Twelve Months Ended January 31,						Eleven Months Ended December 31,						Twelve Months Ended December 31,
	2012			2013			2012			2013			2014			2015
	(in thousands, except per share data)
Total revenue	$	274,340		$	427,145		$	389,484		$	600,233		$	920,802		$	1,164,043
Net loss attributable to common stockholders	(19,865		)	(38,148		)	(24,462		)	(27,017		)	(30,406		)	(169,661		)
Net loss per share, basic and diluted	(0.19		)	(0.23		)	(0.15		)	(0.15		)	(0.15		)	(0.79		)
Weighted-average common shares outstanding used in computing basic and diluted net loss per share	105,955			168,294			167,956			180,968			205,273			213,790



	As of January 31,		As of December 31,
	2012	2013	2013	2014	2015
	(in millions)
Active users	47.6	65.6	76.2	81.5	81.1
(1) Listener hours and active users are defined in the section entitled "Key Metrics" in Item 7 of this Annual Report on Form 10-K.


	Payments Due by Period										Payments Due by Period
			Less Than						More Than				Less Than						More Than
	Total		1 Year		1 - 3 Years		4 - 5 Years		5 Years		Total		1 Year		1 - 3 Years		4 - 5 Years		5 Years
	(in thousands)										(in thousands)
Purchase obligations	$	153,252	$	60,252	$	93,000	$	—	$	—
Minimum guarantees—Content acquisition costs											$	405,199	$	394,199	$	11,000	$	—	$	—
Operating lease obligations	162,634		19,044		45,941		41,747		55,902		123,454		24,380		43,735		22,695		32,644
Total	$	315,886	$	79,296	$	138,941	$	41,747	$	55,902	$	528,653	$	418,579	$	54,735	$	22,695	$	32,644



	Page No.
Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm	63

Consolidated Financial Statements:	65

Consolidated ~~Financial Statements:~~Balance Sheets	65

Consolidated Statements of Operations	66

Consolidated Statements of Comprehensive Loss	67

~~Consolidated Balance Sheets~~	67

Consolidated Statements of ~~Operations~~Stockholders’ Equity	68

Consolidated Statements of ~~Comprehensive Loss~~Cash Flows	69

Notes to Consolidated Financial Statements ~~of Stockholders’ Equity~~	70

~~Consolidated Statements of Cash Flows~~	71

~~Notes to Consolidated Financial Statements~~	72



We have served as the Company’s auditor since 2010.
San Francisco, California
February ~~18, 2016~~26, 2018


	Eleven Months Ended December 31,			Twelve Months Ended December 31,
	2013			2014			2015			Year ended December 31,
										2015			2016			2017
Revenue
Advertising	$	489,340		$	732,338		$	933,305		$	933,305		$	1,072,490		$	1,074,927
Subscription and other	110,893			188,464			220,571			220,571			225,786			315,853
Ticketing service	—			—			10,167			10,167			86,550			76,032
Total revenue	600,233			920,802			1,164,043			1,164,043			1,384,826			1,466,812
Cost of revenue
Cost of revenue—Content acquisition costs	314,866			446,377			610,362			610,362			734,353			804,032
Cost of revenue—Other	42,217			61,627			79,858			79,972			102,717			112,638
Cost of revenue—Ticketing service	—			—			7,121			7,121			59,280			50,397
Total cost of revenue	357,083			508,004			697,341			697,455			896,350			967,067
Gross profit	243,150			412,798			466,702			466,588			488,476			499,745
Operating expenses
Product development	31,294			53,153			84,581			84,135			140,707			154,325
Sales and marketing	169,005			277,330			398,169			397,842			490,364			492,542
General and administrative	69,300			112,443			153,943			154,602			176,164			190,711
Goodwill impairment										—			—			131,997
Contract termination fees										—			—			23,044
Total operating expenses	269,599			442,926			636,693			636,579			807,235			992,619
Loss from operations	(26,449		)	(30,128		)	(169,991		)	(169,991		)	(318,759		)	(492,874		)
Other income (expense), net	(474		)	306			(1,220		)
Loss before benefit from (provision for) income taxes	(26,923		)	(29,822		)	(171,211		)
Benefit from (provision for) income taxes	(94		)	(584		)	1,550
Interest expense										(1,976		)	(26,144		)	(29,335		)
Other income, net										756			1,697			3,024
Total other expense, net										(1,220		)	(24,447		)	(26,311		)
Loss before benefit from income taxes										(171,211		)	(343,206		)	(519,185		)
Benefit from income taxes										1,550			228			790
Net loss	$	(27,017	)	$	(30,406	)	$	(169,661	)	$	(169,661	)	$	(342,978	)	$	(518,395	)
Weighted-average common shares outstanding used in computing basic and diluted net loss per share	180,968			205,273			213,790
Net loss per share, basic and diluted	$	(0.15	)	$	(0.15	)	$	(0.79	)
Net loss available to common stockholders										$	(169,661	)	$	(342,978	)	$	(558,561	)
Basic and diluted net loss per common share										$	(0.79	)	$	(1.49	)	$	(2.29	)
Weighted-average basic and diluted common shares										213,790			230,693			243,637


	Common Stock				Additional Paid-in Capital				Accumulated Other Comprehensive Loss			Accumulated Deficit				Total Stockholders' Equity			Common Stock				Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders' Equity
	Shares		Par Amount					Shares				Accumulated Deficit			Par Amount								Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders' Equity
Balances as of January 31, 2013	172,506,051		$	17	Additional Paid-in Capital			$	Accumulated Other Comprehensive Loss	238,552		$	(6	)		Total Stockholders' Equity		$	(139,574	)	$	98,989
Issuance of common stock upon exercise of stock options	5,659,377		1		18,355				—			—				18,356
Issuance of common stock in connection with secondary offering, net issuance costs	15,730,000		2		378,635				—			—				378,637
Stock-based compensation	—		—		40,041				—			—				40,041
Vesting of restricted stock units	1,520,516		—		—				—			—				—
Share cancellations to satisfy tax withholding on vesting of restricted stock units	(20,004	)	—		(480		)		—			—				(480		)
Components of comprehensive loss:																—
Net loss	—		—		—				—			(27,017		)		(27,017		)
Other comprehensive loss	—		—		—				(295		)	—				(295		)
Balances as of December 31, 2013	195,395,940		$	20	$	675,103			$	(301	)	$	(166,591	)		$	508,231
Issuance of common stock upon exercise of stock options	10,437,509		1		17,115				—			—				17,116
Stock-based compensation	—		—		87,055				—			—				87,055
Vesting of restricted stock units	3,169,456		—		—				—			—				—
Share cancellations to satisfy tax withholding on vesting of restricted stock units	(73,682	)	—		(2,019		)		—			—				(2,019		)
Stock issued under employee stock purchase plan	142,265		—		3,407				—			—				3,407
Excess tax benefit from stock-based awards	—		—		348				—			—				348
Components of comprehensive loss:
Net loss	—		—		—				—			(30,406		)		(30,406		)
Other comprehensive loss	—		—		—				(375		)	—				(375		)
Balances as of December 31, 2014	209,071,488		$	21	$	781,009			$	(676	)	$	(196,997	)		$	583,357		209,071,488		$	21	$	781,009		$	(676	)	$	(196,997	)	$	583,357
Issuance of common stock upon exercise of stock options	1,077,797		—		5,156				—			—				5,156			1,077,797		—		5,156			—			—			5,156
Issuance of common stock related to acquisitions	10,246,616		2		148,488											148,490			10,246,616		2		148,488			—			—			148,490
Stock-based compensation	—		—		111,645				—			—				111,645			—		—		111,645			—			—			111,645
Vesting of restricted stock units	4,184,415		—		—				—			—				—			4,184,415		—		—			—			—			—
Share cancellations to satisfy tax withholding on vesting of restricted stock units	(148,302	)	—		(2,540		)		—			—				(2,540		)	(148,302	)	—		(2,540		)	—			—			(2,540		)
Stock issued under employee stock purchase plan	538,398		—		6,973				—			—				6,973			538,398		—		6,973			—			—			6,973
Equity component of convertible note issuance, net of issuance costs	—		—		102,968				—			—				102,968			—		—		102,968			—			—			102,968
Purchase of capped call	—		—		(43,160		)		—			—				(43,160		)	—		—		(43,160		)	—			—			(43,160		)
Components of comprehensive loss:
Net loss	—		—		—				—			(169,661		)		(169,661		)	—		—		—			—			(169,661		)	(169,661		)
Other comprehensive loss																			—		—		—			159			—			159
Balances as of December 31, 2015																			224,970,412		$	23	$	1,110,539		$	(517	)	$	(366,658	)	$	743,387
Issuance of common stock upon exercise of stock options																			1,588,781		—		3,464			—			—			3,464
Stock-based compensation																			—		—		145,968									145,968
Vesting of restricted stock units																			7,666,647		1		(1		)	—			—			—
Vesting of market stock units																			56,903		—		—			—			—			—
Share cancellations to satisfy tax withholding on vesting of restricted stock units																			(354,638	)	—		(3,368		)	—			—			(3,368		)
Stock issued under employee stock purchase plan																			1,254,910		—		8,484			—			—			8,484
Fair value of escrow settlement																			(20,258	)	—		(393		)	—			—			(393		)
Components of comprehensive loss:
Net loss																			—		—		—			—			(342,978		)	(342,978		)
Other comprehensive income	—		—		—				159			—				159			—		—		—			(305		)	—			(305		)
Balances as of December 31, 2015	224,970,412		$	23	$	1,110,539			$	(517	)	$	(366,658	)		$	743,387
Balances as of December 31, 2016																			235,162,757		$	24	$	1,264,693		$	(822	)	$	(709,636	)	$	554,259
Issuance of common stock upon exercise of stock options																			4,968,577		—		9,789			—			—			9,789
Stock-based compensation																			—		—		135,788			—			—			135,788
Vesting of restricted stock units																			9,478,804		1		(1		)	—			—			—
Stock issued under employee stock purchase plan																			1,287,687		—		11,387			—			—			11,387
Fair value of escrow settlement																			(30,363	)	—		(589		)	—			—			(589		)
Cumulative effect adjustment from adoption of ASU 2016-09																			—		—		1,154			—			(1,154		)	—
Series A preferred stock dividends																			—		—		—			—			(40,166		)	(40,166		)
Components of comprehensive loss:
Net loss																			—		—		—			—			(518,395		)	(518,395		)
Other comprehensive income																			—		—		—			605			—			605
Balances as of December 31, 2017																			250,867,462		$	25	$	1,422,221		$	(217	)	$	(1,269,351	)	$	152,678



Supplemental disclosures of cash flow information
Cash paid during the period for income taxes	$	389	$	297	$	209
Cash paid during the period for interest	$	351	$	7,222	$	8,981
Purchases of property and equipment recorded in accounts payable and accrued liabilities	$	5,890	$	1,129	$	2,106
Fair value of shares issued related to the acquisition of a business	$	146,855	$	—	$	—
Accretion of preferred stock issuance costs	$	—	$	—	$	29,317
Stock dividend payable to preferred stockholders	$	—	$	—	$	10,849
Fair value of convertible promissory note receivable received as partial consideration for sale of subsidiary	$	—	$	—	$	36,203


	As of January 31,				As of December 31,						As of December 31,
	2012		2013		2013		2014		2015		2013		2014		2015		2016		2017
	(in thousands)										(in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	44,126	$	65,725	$	245,755	$	175,957	$	334,667	$	245,755	$	175,957	$	334,667	$	199,944	$	499,597
Working capital	89,218		82,644		362,777		439,254		451,675		$	362,777	$	439,254	$	451,675	$	371,704	$	685,883
Total assets	178,015		218,832		673,335		749,290		1,240,657		$	673,335	$	749,290	$	1,240,657	$	1,184,810	$	1,166,322
Long-term debt, net	—		—		—		—		234,577		$	—	$	—	$	234,577	$	342,247	$	273,014
Total liabilities	73,475		119,843		165,104		165,933		497,270		$	165,104	$	165,933	$	497,270	$	630,551	$	522,795
Redeemable convertible preferred stock											$	—	$	—	$	—	$	—	$	490,849
Common stock and additional paid-in capital	205,971		238,569		675,123		781,030		1,110,562		$	675,123	$	781,030	$	1,110,562	$	1,264,717	$	1,422,246
Total stockholders' equity	104,540		98,989		508,231		583,357		743,387		$	508,231	$	583,357	$	743,387	$	554,259	$	152,678


	As of December 31, 2014									As of December 31, 2016
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value		Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in thousands)									(in thousands)
Cash equivalents and marketable securities
Money market funds	$	89,113	$	—	$	—		$	89,113	$	55,752	$	—	$	—		$	55,752
Commercial paper	54,792		—		—			54,792
Corporate debt securities	235,135		6		(444		)	234,697		43,413		3		(55		)	43,361
U.S. government and government agency debt securities	7,751		—		(9		)	7,742
Total cash equivalents and marketable securities	$	386,791	$	6	$	(453	)	$	386,344	$	99,165	$	3	$	(55	)	$	99,113



	As of December 31, 2016
	Adjusted Cost		Fair Value
	(in thousands)
Due in one year or less	$	92,914	$	92,861
Due after one year through three years	6,251		6,252
Total	$	99,165	$	99,113



	As of December 31, 2017
	Adjusted Cost		Fair Value
	(in thousands)
Due in one year or less	$	354,553	$	354,553
Total	$	354,553	$	354,553



	As of December 31, 2015
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in thousands)
Cash equivalents and marketable securities
Money market funds	$	180,021	$	—	$	—		$	180,021
Commercial paper	35,881		—		—			35,881
Corporate debt securities	79,760		8		(347		)	79,421
U.S. government and government agency debt securities	17,198		—		(2		)	17,196
Total cash equivalents and marketable securities	$	312,860	$	8	$	(349	)	$	312,519



	As of December 31, 2014
	Twelve Months or Less					More than Twelve Months					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	(in thousands)
Money market funds	$	—	$	—		$	—	$	—		$	—	$	—
Commercial paper	—		—			—		—			—		—
Corporate debt securities	192,699		(422		)	12,148		(22		)	204,847		(444		)
U.S. government and government agency debt securities	5,240		(9		)	—		—			5,240		(9		)
Total	$	197,939	$	(431	)	$	12,148	$	(22	)	$	210,087	$	(453	)



Allowance for Doubtful Accounts	Balance at Beginning of Period		Additions	Write-offs, Net of Recoveries		Balance at End of Period
	(in thousands)
For the year ended December 31, 2015	$	1,218	2,085	(1,138	)	$	2,165
For the year ended December 31, 2016	$	2,165	3,508	(2,040	)	$	3,633
For the year ended December 31, 2017	$	3,633	5,274	(3,555	)	$	5,352


	As of December 31, 2014						As of December 31, 2016
	Fair Value Measurement Using						Fair Value Measurement Using
	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Total
	(in thousands)						(in thousands)
Assets
Money market funds	$	89,113	$	—	$	89,113	$	55,752	$	—	$	55,752
Commercial paper	—		54,792		54,792
Corporate debt securities	—		234,697		234,697		—		43,361		43,361
U.S. government and government agency debt securities	—		7,742		7,742
Total assets measured at fair value	$	89,113	$	297,231	$	386,344	$	55,752	$	43,361	$	99,113



	(in thousands)
Cash paid by Pandora	$	191,479
Cash paid by Ticketfly to option holders	7,238
Common stock (11,193,847 shares at $12.18 per share) issued by Pandora to selling shareholders	136,342
Fair value of stock options and restricted stock units assumed	10,514
Less: purchase price adjustments	(6,995		)
Less: post-combination compensation expense	(3,235		)
Purchase consideration	$	335,343



	(in thousands)
Current assets	$	39,809
Long-term assets	15,982
Current liabilities	(21,853		)
Long-term liabilities	(6,298		)
Deferred tax liability	(1,738		)
Intangible assets	76,800
Goodwill	232,641
Total	$	335,343



	Ticketfly				Rdio			Other
	Estimated fair value			Estimated useful life in years	Estimated fair value		Estimated useful life in years	Estimated fair value			Estimated useful life in years
	(in thousands, except for estimated useful life)
Intangible assets:
Customer relationships - clients	$	37,300		8	$	—		$	—
Developed technology	28,100			5	26,400		2-5	1,550			4
Tradename	10,400			8	1,000		3	320			2
Customer relationships - users	1,000			2	—			940			2
FCC license - broadcast radio	—				—			193
Tangible assets acquired, net	27,640				1,969			(490		)
Deferred tax liabilities	(1,738		)		—			(49		)
Net assets acquired	$	102,702			$	29,369		$	2,464
Goodwill	232,641				48,131			23,103
Total fair value consideration	$	335,343			$	77,500		$	25,567



	Goodwill
	(in thousands)
Balance as of December 31, 2014	$	—
Goodwill resulting from business combinations	303,875
Balance as of December 31, 2015	$	303,875



		As of December 31, 2014							As of December 31, 2015
	Weighted average remaining useful lives (in years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value		Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
		(in thousands)
Finite-lived intangible assets
Patents	8.5	$	8,030	$	(1,091	)	$	6,939	$	8,030	$	(1,824	)	$	6,206
Developed technology	4.7	—		—			—		56,050		(1,265		)	54,785
Customer relationships - clients	7.8	—		—			—		37,300		(777		)	36,523
Customer relationships - users	1.7	—		—			—		1,940		(318		)	1,622
Trade names	7.3	—		—			—		11,720		(304		)	11,416
Total finite-lived intangible assets	6.2	$	8,030	$	(1,091	)	$	6,939	$	115,040	$	(4,488	)	$	110,552

Indefinite-lived intangible assets
FCC license - broadcast radio		$	—	$	—		$	—	$	193	$	—		$	193

Total intangible assets		$	8,030	$	(1,091	)	$	6,939	$	115,233	$	(4,488	)	$	110,745



	As of December 31, 2017
	(in thousands)
2018	$	6,067
2019	5,546
2020	5,251
2021	727
2022	727
Thereafter	1,091
Total future amortization expense	$	19,409



	As of December 31, 2015
	(in thousands)
2016	$	20,437
2017	20,002
2018	17,649
2019	17,129
2020	15,896
Thereafter	19,439
Total future amortization expense	$	110,552



	Year ended
	December 31, 2017
	(in thousands except for effective interest rate)
Effective interest rate	14.73		%
Contractually stated interest income	$	1,082
Amortization of discount	$	687



	As of December 31, 2017
	Future Minimum Lease Payments		Future Minimum Sublease Income
	(in thousands)
2018	$	24,380	$	2,053
2019	23,313		2,065
2020	20,422		2,103
2021	13,073		1,783
2022	9,622		—
Thereafter	32,644		—
Total	$	123,454	$	8,004



	Eleven Months Ended December 31,			Twelve Months Ended December 31,
	2013			2014			2015
	(in thousands)
Jurisdiction
Domestic	$	(24,005	)	$	(24,230	)	$	(163,460	)
Foreign	(2,918		)	(5,592		)	(7,751		)
Loss before provision for income taxes	$	(26,923	)	$	(29,822	)	$	(171,211	)



	Shares Available for Grant
	Equity Awards		ESPP		Total
Balance as of December 31, 2016	8,344,668		2,064,427		10,409,095
Additional shares authorized	9,406,510		6,000,000		15,406,510
Restricted stock units granted	(13,627,053	)	—		(13,627,053	)
Options granted	(2,226,443	)	—		(2,226,443	)
ESPP shares issued	—		(1,287,687	)	(1,287,687	)
Options forfeited	382,769		—		382,769
Options expired	1,469,714		—		1,469,714
Restricted stock units forfeited	7,089,976		—		7,089,976
Performance units forfeited*	883,169		—		883,169
Balance as of December 31, 2017	11,723,310		6,776,740		18,500,050
*Includes shares forfeited for MSUs and PSUs



	Options Outstanding
	Outstanding Stock Options		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (1)
	(in thousands, except share and per share data)
Balance as of December 31, 2014	10,980,256		$	7.91	1.08	$	120,033
Granted	2,940,736		3.44
Exercised	(1,077,797	)	4.78
Forfeited	(27,304	)	6.09
Balance as of December 31, 2015	12,815,891		7.15		1.09	101,151
Vested and exercisable as of December 31, 2015	9,292,855		5.74		0.57	81,541
Expected to vest as of December 31, 2015 (2)	3,259,020		$	10.81	2.47	$	18,156

(1)Amounts represent the difference between the exercise price and the fair value of common stock at each period end for all in the money options outstanding based on the fair value per share of common stock of $17.83 and $13.41 as of December 31, 2014 and 2015.
(2)Options expected to vest reflect an estimated forfeiture rate.



	Number of RSUs		Weighted-Average Grant Date Fair Value
Unvested as of December 31, 2016	22,404,417		$	13.26
Granted	13,627,053		10.13
Vested	(9,478,804	)	13.80
Forfeited	(7,277,071	)	12.16
Unvested as of December 31, 2017	19,275,595		11.19
Expected to vest as of December 31, 2017	19,275,595		$	11.19