A Golden Age of Music or finding a buyer? Pandora looks to Premium to build its future

SUMMARY:

Digital music pioneer Pandora is exploring the idea of finding a buyer as it waits for a cash injection, but for CEO Tim Westergren, there’s a Golden Age of Music around the corner and waiting to be tapped into.

When we last took a look at digital music platform Pandora, the firm was still fending off speculation about its long-term future. That won’t have gone away this week with the news that it is exploring strategic alternatives, including a possible sale, following pressure from activist shareholders.

This isn’t something that’s going to linger on though. The firm is set to pick up a $150 million cash injection and wants the strategic alternative evaluation over and done with in the 30 days prior to that investment closing. So, one way or another, there will be some kind of ‘next steps’ announcement to come pretty soon.

For now, the way ahead is to push forward wth the new Premium service offering, Pandora’s counter to the likes of Spotify and Apple Music’s paid products. Previously only available via invitation, Pandrora Premium is now open to all US users via the Apple App Store and Google Play.

That brings the Pandora offering range up to three options – the standard version, Plus and now Premium. According to the firm, since mid-March approximately 1.3 million trials have begun for Plus and Premium, of which 500,000 are at the Premium tier. Premium only became openly available from mid-April, so it’s very, very early days.

That said, Pandora has 76.7 million active users, so the firm needs to see that 500,000 rise rapidly if it’s to be said that the Premium adoption has serious traction.

It’s not a case of ‘betting the farm’ on Pandora Premium, but it’s clear that CEO and co-founder Tim Westergren sees a lot riding on its success, calling it:

Our most important new product since our birth, we aim to do the same thing for on-demand that we did for digital radio reinventing the experience through simplicity and personalization.

There’s a huge opportunity for growth here, he argues:

Currently, fewer than 100 million people worldwide pay for streaming music. The vast majority of prospective subscribers have yet to find a service worth paying for. We believe there is significant opportunity ahead of us, and it starts with our own ad-supported and paid radio listeners where research tells us that approximately 30% are strong candidates for an on-demand tier.

OK, but the counter argument to those low payment numbers would be that this is an age in which listeners, for better or worse, don’t see the need to pay for music. That said, Westergren’s point about the customer experience being key to adoption of a payment model is an interesting one. With that in mind, he claims that the early engagement metrics – based on data from the invite-only beta period for Premium – are encouraging:

Nearly half of Premium trial listeners used Pandora daily during their first week, significantly higher than non-Premium listeners. Most importantly, approximately half of all early Premium users are taking advantage of features on the tier that are unique to Pandora, including the My Thumbs Up playlist, Linked Playlists, and the magic wand that is Add Similar Songs. It is clear that there is significant pent-up demand among Pandora users for features beyond what they have been historically been able to get from our radio tiers and this provides further confidence in our research that approximately 30% are strong candidates for an on-demand tier.

Golden Age?

Obviously those figures need to be put to the test again now that Premium is on general availability, but whatever the outcome, there’s no questioning Westergren’s undented enthusiasm for what he sees as Pandora’s future:

We believe that we are standing on the cusp of the next Golden Age for Music. After a generation-long period of uncertainty in the music industry, revenues are now growing at their fastest rate in nearly 20 years. And for the first time, streaming represents the majority of those revenues.

However, music consumers are still faced with a sub-par listening experience. Frankly, the delivery of streaming music has historically been approached the wrong way. Yes, the transition from physical to digital media was a game-changing phenomenon.

But listeners are still subject to a fundamentally retail experience. Instead of an 80,000 square foot warehouse, consumers are now taken to a 40 million song digital storefront and told to find what they want. It should be the other way around. The solution isn’t just to help listeners find music, it’s to help bring music to listeners. Simplicity is the next frontier in music consumption.

Where Pandora can win here, insists Westergren, is by being able ot exploit 17 years of investment and effort in building its Music Genome Project:

As Pandora has become the largest online music platform in the US, we’ve amassed a massive amount of very precise preference data from a highly engaged audience, and we are leveraging our unique assets to create the next generation of what streaming music could be – a simple, elegant, and completely personalized experience that works for all types of listeners, in all formats of listening. We know what people like to listen to, and we also know how they like to listen to it. We know the right, unique playlist construction for every one of our listeners. We are able to make it easy to listen to and discover music they love. And in today’s environment, that effortlessness is the Holy Grail for a successful consumer music service.

We believe more strongly than ever that the best way to bring about the next Golden Age of Music is to be able to effectively monetize the entire spectrum of listening, from ad-supported and subscription radio to full on-demand, and to empower artists to harvest the audience scale and engagement on the platform essentially allowing them to setup storefronts in a massive new marketplace. Pandora is the only music company that is successfully achieving this vision. Our expanded listening tiers will drive greater engagement, which attracts advertisers and sponsors, and the data from all these offerings is used to fine-tune and grow the ecosystem.

My take

I really want Pandora to succeed. It’s a digital pioneer that blazed a trail for others to follow. But as in so many cases, first mover advantage doesn’t necessarily mean long-term advantage when disruptor rivals move in. It’s unfortunate, but perhaps symbolic, timing that Apple’s market value topped $800 billion this week, shortly after Pandora announced its forthcoming $150 million cash injection.

But there’s a more ominous Apple stat that is of greater concern. Less than 2 years after launch, Apple Music has more than 20 million paying subscribers. That’s not as good as Spotify, which has more than 50 million. To date, Pandora has 4.71 million. There’s a hell of a lot riding on the Premium offering if those gaps are to be made up.

Image credit - Pandora