8:24am PT by Eriq Gardner
Rdio Was Losing $2 Million Each Month Before Bankruptcy
On Monday, Rdio declared Chapter 11 bankruptcy in one of the bigger busts in the era of streamed music. The filing was expected after an announcement that the on-demand service would sell some of its key assets to Pandora for $75 million, but court papers lodged in U.S. Bankruptcy Court in San Francisco, California reveal more about the company's financial state.
At the time of the bankruptcy filing, Rdio had more than $190 million in secured debt and about $30 million of unsecured debt.
Much of the secured debt is owed to Pulser Media, which provided the bulk of the company's financing since its inception in 2008 and is now a majority owner. As for unsecured creditors, digital media set-top box manufacturer Roku is tops with a $2.7 million claim. Sony Music is next at $2.4 million. Online ticket platform AXS Digital ranks third at $1.25 million, and Shazam comes in at fourth at nearly $1.2 million, while Warner Music Group rounds out the top five at more than $613,000.
Rdio currently owes more for ads placed on Facebook (nearly $500,000) than to Universal Music Group ($294,000) or Merlin BV ($134,960), which represents independent record labels.
According to a declaration by Rdio general counsel Elliot Peters, the streaming company was bleeding money at a quick rate.
The bulk of Rdio's revenue came from its $9.99 per month subscriptions. The company took in $1.5 million per month there. Advertising only accounted for $100,000-$150,000 per month.That was dwarfed by the nearly $4 million in monthly operating expenses, including payroll for 140 employees, royalty payments to rights owners and service maintenance costs.
That meant that Rdio was losing anywhere between $1.85 to $2.4 million each month, and Peters reports Rdio "no longer has the economic means of funding such significant operating cash flow shortfall."
By late 2014, Rdio had hired Moelis & Company, an investment bank, in an attempt to raise new equity capital, but ultimately realized it wouldn't be possible. Rdio also reports looking for a buyer or merger partner, and ultimately decided that Pandora was making the best offer — $75 million for tech assets, but one that was contingent on a Chapter 11 filing, an auction process where overbids might result and eventually court approval.
In the meantime, Rdio has secured $3 million debtor-in-possession financing to supplement a $2.5 million payment from Pandora, which will fund operations through the next eight weeks.