Despite having the largest streaming music user base by far, Pandora Media Inc. (NYSE: P) just cannot seem to break even. It is an uphill battle that just got even steeper as it just lost a court case to BMI and will now have to pay 2.5% in royalties instead of 1.75%. The main problems are two: First, its per-user value is comparatively low, and second, it is too inefficient.

Pandora may boast the largest active user base in streaming music of 81.5 million, but in terms of per-user value, if we annualize last quarter’s revenue, it comes out to $11.32 per user per year. If we match this up to its market cap of $3.74 billion, that is $45.88 in capital value per user.

The numbers actually make quite a bit of sense in context. Run Spotify on the same metrics, and the private music streamer is estimated to be worth $8.4 billion based on capital raises. It boasts a 60 million monthly user base with 15 million paid subscribers. By default, Spotify users are worth $120 per year, since they pay $10 a month, but take into account the entire active user base of 60 million and we are at $30 per user annually. That’s 165% higher than Pandora’s per-user value, and Spotify is valued at 125% higher than Pandora. That is not quite 165%, but if we take into account that Spotify’s active user base is 25% lower than Pandora’s, the market valuations line up almost perfectly.

From here on out, Pandora can do one of two things. It can cut back and try to eke out a small profit by reducing staff, or it can go all out, foot on the gas, and try to expand its user base in order to make it look more attractive to a potential suitor that can increase per-user value to something closer to Spotify’s.

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Large premiums on large user bases have been paid before. Google Inc. (NASDAQ: GOOGL) bought WhatsApp for $19 billion when the text messaging service had 400 million users. That is $47.50 per user, just about the same capital per user value as Pandora, except WhatsApp’s per-user value is only $1 per year. WhatsApp charges $1 a year for the app after a first year free download, and there are no ads, at least not yet. Google’s plan with WhatsApp has to be upping the per user value, because with the current numbers, it will take almost 50 years to break even per user, excluding any expenses. Even if WhatsApp doubles its user base to 800 million, it would still take a quarter of a century to break even just on the capital investment.

Google has paid even higher premiums per user than that in the past. It did buy YouTube for $1.65 billion in 2006 when it only had 20 million monthly users. That is $82.5 per user. Obviously Google’s plan was to both up the user base and the per-user value with YouTube, and so far that has worked, to a degree. YouTube now has 1 billion monthly active users and generates $4 billion in annual revenue, which translates to $4 per user, and YouTube is now breakeven.

Having paid such high premiums before, buying Pandora at a reasonable premium to market cap for its 81.5 million users would put per-user cost at somewhere between $50 and $60, much less than what it paid for YouTube, and still much less than what it paid for WhatsApp, if we factor in the 11 times plus higher per-user value that Pandora has over WhatsApp. Additionally, Pandora’s active user base, though the largest in streaming music, still has plenty of room to grow over the years and is nowhere near WhatsApp’s. So if Google buys it, it will be looking both to expand the base and the per-user value, as it did with YouTube.

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Music streamers are popping up all over the place now, so it’s not just Google that could be interested in the largest streaming user base on the internet. Though Apple Inc. (NASDAQ: AAPL) already spent $3 billion acquiring Beats Music and seems set on its plan, another acquisition is at least possible, if unlikely. Apple just launched its own Apple Music with an emphasis on human curation.

Speaking of music curation, the whole streaming music sector is buzzing with activity. There’s even movement on the startup front as another application called CÜR Music is set to launch this year, planning to be a paid music streaming plus sharing app, sort of a cross between WhatsApp/Facebook and Pandora/Spotify.

A more likely suitor for Pandora and its user base could be Samsung, which launched its own Milk Music last year, and just announced cutbacks in that division. This could be a sign that it wants to acquire a user base outright and merge it in, rather than spending more to build its own. A music streaming business is an essential building block in an across the board competition with Apple for sales of smartphones and tablets.

Google, Apple or Samsung could all streamline Pandora’s business and make it more efficient, as they all have the economies of scale to do so. As for upping per user value, that will require changing the way Pandora generates revenue.

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