When the lawyers representing Pandora Media filed the papers this morning with the Securities and Exchange Commission (SEC) that are necessary to seek an initial public offering (IPO), a dirty little secret got out. After digging through the nearly 150-page document, various technology reporters noticed that the popular streaming music service has been issued a subpoena by a federal grand jury. The subpoena concerns how the company has been sharing personal data through its smartphone application.
Pandora has reason to keep the subpoena secret. It doesn't make the company look very good to customers without the energy or desire to dig through the complete document. And executives believe that they are just one of many companies being investigated. "[W]e were informed that we are not a specific target of the investigation, and we believe that similar subpoenas were issued on an industry-wide basis to the publishers of numerous other smartphone applications," Pandora's filing states.
If that's the case, this could be the latest in a string of suits and subpoenas filed by lawmakers who have expressed serious concerns over online privacy issues. "This latest action follows reports of a December class action suit against Apple and a number of App Store developers over the sharing of personal information with advertisers," the Unofficial Apple Weblog noted. "Since grand jury proceedings are secret, it can't be determined if the two actions are related."
The Pandora smartphone application collects the age, zip code, gender and other bits of information from its 80 million-plus customers in order to track usage habits. These habits -- to date, Pandora claims to have recorded nearly four billion hours of user listening -- are bundled and sold to advertisers to bring in enough money to keep the service free of charge.
"[G]overnment regulators have proposed 'do not track' mechanisms, and requirements that users affirmatively 'opt-in' to certain types of data collection that, if enacted into law or adopted by self-regulatory bodies or as part of industry standards, could significantly hinder our ability to collect and use data relating to listeners," Pandora explains in the SEC filing. "Restrictions on our ability to collect, access and harness listener data, or to use or disclose listener data or any profiles that we develop using such data, would in turn limit our ability to stream personalized music content to our listeners and offer targeted advertising opportunities to our advertising customers, each of which are critical to the success of our business."
In other words: You have to share to stream. If Pandora is unable to learn about you and your habits on the Internet, you'll be worthless to the advertisers that are currently footing the bill.
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