Los Angeles - Pandora Media, the Internet radio service with 70 percent of the market, announced the unexpected resignation of Chairman and Chief Executive Officer Joe Kennedy after almost a decade leading the company.

Kennedy, 53, made the decision after discussions with the board over the company's future. Thursday's announcement surprised investors, tempering an after-hours stock surge as much as 26 percent that followed fourth- quarter results that beat analysts' forecasts.

"I reached the conclusion and advised the board that the time is right to begin a process to identify my successor," said Kennedy, who will remain while his replacement is sought.

Under Kennedy, Pandora has rapidly increased listeners, eating into the $14 billion local-radio market with online and mobile products. The company has struggled to show a profit, as revenue growth hasn't kept up with ballooning music costs. The board should seek candidates with backgrounds in radio sales at companies like Clear Channel Communications or Sirius XM Radio, said Michael Pachter, an analyst with Wedbush Securities in Los Angeles.

"They don't need a product development guy," Pachter said. "They need a chief revenue officer."

Tim Westergren, the company's founder and chief strategy officer, isn't a candidate to be CEO, said a person with knowledge of the situation. Kennedy's departure has been discussed for some time, the person said.

Charles Sipkins, an outside spokesman for Pandora, declined to comment.

The decision was "pretty recent," Kennedy said on a conference call. His departure will allow a new CEO to take over before the January 2014 start of a two-year arbitration process that will set royalty rates beyond 2015.

Pandora is gaining listeners and advertisers from conventional broadcasters, ending February with an 8.5 percent share of total U.S. radio listening, according to the company.

To contain music costs, Pandora is limiting users of mobile devices to 40 hours of free listening a month and is backing U.S. legislation to lower royalty payments.

By May, Pandora will be competing directly with conventional stations for the first time on the radio industry's biggest advertising services, gaining better access to local marketers.

The services will provide Pandora's audience ratings alongside to those of stations and let buyers place ads, Kennedy said in an interview this month.