Large audience, highly engaged, incredible advertising platform and a product that has really nailed personalization.
While some have questioned the long-term viability of the Pandora business model, the firm’s new CEO Naveen Chopra is in no doubts about what he sees as the assets that will ensure the company’s survival in what is an increasingly competitive digital music landscape. Speaking at the recent Goldman Sachs Communacopia event, Chopra expanded on his point, citing:
75 million people who use Pandora on a monthly basis, close to 100 million people who use it on a quarterly basis. We’re just under 23 hours a month of engagement which you know puts us in the territory of how people use Netflix or Facebook. [We are] the largest digital audio advertising platform in the country. We control on the two thirds of all digital audio advertising in the US today. And I think that creates some interesting opportunities as a business beyond obviously what we’ve been to do today. We continue to have what I view as world-class capability around personalization.
But, taking all that into account, Pandora’s recent history has been one characterised by tough decisions, organizational restructures and the exiting of some international markets to focus on the homeland. It’s also, critics are eager to point out, been about falls in audience size. Chopra countered:
We have taken a little bit of a hit in the overall size of the audience, so we’ve seen a decrease between 2% and 3% kind of holding relatively steady at that level over the first half of the year. So while we definitely need to address that issue and we have a number of initiatives that are intended to do that, I think is important not to lose side of effect that we continue to have a highly engaged base that actually is engaging with the product more and more as we develop new features, new functionality.
The important thing to do is to leverage that base and get users into a place where they can be more effectively marketed to with additional services, he added:
So rather than spending a bunch of marketing for instance to try to push people into our subscription tiers, it’s really about getting people on to our core ad-supported platform. We have a lot of kind of indirect ways of helping that happen, right, distribution partnerships, our brand, our PR, our existing audience, these are all things that can really help us grow without having to spend explicitly. Platform partnerships I think are also a critical part of that.
Once we get people on our platform then you know we effectively can market to them at little or no cost. We have all sorts of on platform promotional capabilities, messaging capabilities, we also have ad inventories in the event that we choose to utilize that. So I look at our marketing investment is really you know there will continue to be some level of investment to maintain our brand to bring listeners into our free service. But in terms of where we go beyond that it’s really about on platform.
That implies that the Premium, ad-free, version of Pandora isn’t the main focus as it might have been interpreted a year or so ago. Chopra argued:
Premium right now, I think is doing a lot of the things that we had hoped it would do, meaning Pandora learned over the last couple of years that the number one reason people left our ecosystem was the desire to have more interactive control over their music. It’s not necessarily for everyone, and it’s not even necessarily the dominant use case, but for a lot of people there are those kind of you know what appears to be roughly 10% of your listening, where there is a desire to hear a particular artist or a particular track.
We got just under 400,000 Premium subscribers at the end of Q2, which is basically our first three months of post the first months of trial period and so we’re now we’re pleased with that. It has helped us re-engage some of our younger audiences, which are the people that, not surprisingly, have the largest appetite for that kind of interactive use of music. So it’s working well in that regard.
That said, Premium is far from what it needs to be, he conceded:
We do still have more work to do. Even in a mode where we are perhaps not relying on the subscription product for as much of our growth as we might have been in the past, it still needs to be a compelling attractive product, and there are some things that we haven’t nailed yet. We don’t have all the billing capabilities that we would like, we don’t have offer a student plan, we don’t offer a family plan, these are all things that are important and there on a roadmap. We don’t have our Premium service on all the platforms that we would like today.
That’s going to mean expansion onto more Smart Home platforms:
We also believe that our continued engagement with the new generation of connected audio devices is a critical way intersecting listeners and that’s a lot of new listeners, when you think about things like an Amazon Echo or Google Home. There will be several new forms of these devices hitting the market later this year. They’re kind of tailor made for Pandora, because they’re primarily about a lean-back listening experience. Their audio is their primary purpose, that’s what we do.
He added that he expects the developers of such platforms to welcome partnerships with the likes of Pandora:
My sense is that the platform owners if you will whether it’s Amazon, Google or others that will develop, recognize the importance of having a healthy ad ecosystem within those platforms. At the end of the day, it’s going to be a lot like the mobile ecosystem, where you are going to build the audience by having a lot of different applications. Those applications will have different business models, – some of them will be direct pay, some of them will be subscription and a lot of them will be ad-supported. So we’re kind of charging ahead there. I think we’re going to be breaking some ground in terms of creating ad formats and ad capabilities and we’re looking forward to working closing with the platform providers that help define some of that technology.
Mention of the ad ecosystems prompted an admission that this is another area that needs improvement. While Pandora might well be able to stake a claim to be the largest audio advertising platform, it’s not an asset that’s yet delivering to its full potential. Or as Chopra put it:
From an ad perspective, we are not what we would like to be. We have [to give] you more automation, adoption of things like programmatic selling that we would like to bring to the fold more targeting capabilities, more ROI measurement capabilities…We have a long list of things that we would like to do, and as we develop those I think they will drive monetization even beyond where we sit today, which you know they said has been a great source of success for the business.
Chopra identified a number of things that he regards as critical for Pandora to execute on in order to really fulfill its monetization potential:
Ad tech is a biggie and that’s not an overnight one. It is an area where in all candor, I think the company is under invested over the last couple years the priority has obviously been on some other things. So we have some catching up to doing in that regard. And it’s not one specific piece of ad tech, there things around programmatic self-serve ROI measurement that need investment.
Developing new ad formats is also a critical part of our monetization plan. Advertisers demand a lot of innovation and we’re actually seeing the pace of innovation probably accelerate in large part, thanks to the standards that are being set by the Facebooks and Googles of the world which obviously control the vast majority of digital media. And so that is an area where you know every few months you’ve got to be able to bring something new to the table.
I think again we’ve done some of that. I’d like to get it to a new level. We’ve talked about things like dynamic creative, some new ad formats all of which are exciting for advertisers and you know we’re going to have a drumbeat of those things come in over the next few quarters.
As a ‘to do’ list, this makes sense. Now the trick is executing against it. I’m not among the pessimists about Pandora, but it’s a far more competitive market space now than it was even a year or so ago and the company needs to put its house in order promptly.
Image credit - Pandora