After years of battling over royalty fees, internet radio station Pandora is finally moving its balance sheet into the black. Getting a boost of subscriptions from its iPhone app, Pandora is also learning that its users have a much higher tolerance for ads than it previously thought.

A beloved service with a host of financial problems stemming from record industry copyright fees, Pandora now intersperses ads into its free content and the company is finding that audiences don’t seem to mind.

Pandora founder Tim Westergren spoke to Bloomberg News about the company’s finances Tuesday:

“With budgets tightening in the recession, advertisers are becoming
more selective about where to spend money. That benefits Pandora
because it can deliver ads to targeted users, making sure commercials
aren’t “wasted” on the wrong demographic group, Westergren said.”

After decades of advertising interruptions on terrestrial radio,
Pandora’s relatively minor advertising additions are not turning people
away. In fact the opposite, they are winning 50,000 to 60,000 new users per day, and
Pandora expects to earn as much as $40 million this year.

Westergren says that Pandora’s iPhone app has “changed the perception people have of what
internet radio is, from computer-radio to radio, because you can take
the iPhone and just plug it into your car, or take it to the gym.”

He predicts that the company will include more advertising as its customer base grows, but the company has tried to introduce ads in a smart way. in January, they started adding advertising between songs. And on the web and the free iPhone app, the Pandora’s visual ads only update when a user looks at the interface.

With the amount of data that Pandora collects from its users, the company can sell ads in a very targeted manner. And the current economy is proving to be a boon in changing customer perception to adds. 

While consumers may have expected as much as possible to be free online a year ago, as services based on a free model struggle to stay afloat in this economy, customers are proving amenable to money making attempts from companies they like. For instance, the free, ad supported iPhone app brings in 20,000-30,000 new users a day.