We've had a rough couple of years and there are plenty of doubters, but not inside our four walls.
That’s the message from Pandora co-founder Tim Westergren as part of his pitch to calm Wall Street nerves. Those "rough couple of years" have seen listener numbers plateau, rumors that the firm is up for sale and then the sudden departure last month of CEO Brian McAndrew after 2.5 years in the hot seat.
So it’s understandable that Westergren, having stepped into the CEO role, spent a long time yesterday reminding everyone of where the firm has come from over the past 16 years, as well as where he intends to take it.
In what can be read as a somewhat defensive stance, he blamed lack of understanding for external perceptions of Pandora:
Pandora's strategic position is not obvious to the outside world. You have to look under the hood. The position of our personalization in which we have invested immeasurably for close to two decades is not obvious. How hard is it to deliver a consistently satisfying personalized radio experience over months and years? Just ask any of the dozens of so called Pandora killers that have come and gone. It is a fantastically hard problem.
Our recommendation engine is a formidable combination of painstakingly generated ground-truth data, tens of billions of precise listener signals and the large and growing corpus of original algorithms and data science research.
All about the music
First and foremost, he emphasized, Pandora is about music and musicians:
When I was 29 years-old I was a keyboardist and a songwriter in a travelling rock band, spending weeks on the road traversing Colorado, Idaho, Washington, Oregon and California on the so called Crescent Moon Tour.
We were one in a sea of bands driving thousands of miles packed in with our equipment, playing in small clubs and doing the best we could with wires and staple guns to get locals to show up. The music was great but like so many other bands, we shared the stage with, we were penniless and struggling to create a sustainable career.
I saw so many great bands that never made it past their first self produced album. And I remember like it was yesterday the moment I decided somewhere on a stretch of I-80 in Nevada to hang it up.
Five years later, it was dot com boom time (version 1) and Westergren had an idea:
The Music Genome product was the first recommendation methodology that offered the promise of a level playing field and a powerful discovery engine if we could get it to scale. Done right, we could do for musicians what eBay did for small merchants. It's hard to put into words just how profound and gratifying it is to see this vision taking shape. Barely a day goes by now that I don't hear some anecdote about a working musician somewhere feeling the Pandora effect.
From a Bluegrass Band, selling out a show for the first time, to a String Quartet unexpectedly selling a bunch of CDs, to a defunct band reuniting because of renewed interest in their music. The vision of a thriving music economy is actually coming true.
Pandora is at the forefront of that economy, he added:
Just like the personalization engine, the depth and complexity of our monetization engine is also mostly unseen, its only symptom as a growing core business that makes almost as much revenue per hour as a broadcast radio on one-fifth of the out load.
This success is built on the core internet radio offering at the heart of Pandora. The ad-supported radio product will do more than $1 billion in revenue this year and generate more than $500 million in margins after content costs. Those costs are getting higher, representing 58% of total revenue in Q1, a significant increase from the fourth quarter.
Approximately 100 million unique listeners come to Pandora every quarter, they listen to an all-time high average of over 23 hours per month. This represents the third largest logged in user base in the US behind only Facebook and Twitter.
Through their interactions with the service and the ability we have to cross match data with third-party services, we have a highly developed understanding of their music preferences and their socio-graphic profile. With the on-boarding of our targeted local concert recommendation, we will add to that a precise longitude and latitude.
What’s missing from this is a marketplace for that audience, which is next on the strategic agenda:
Every move we have made over the past two years, including the acquisitions of Next Big Sound, Ticketfly and Rdio, has been a deliberate strategy to form a centralized marketplace, where listeners and music makers come for all things music.
Our heavy investment in artist tools through the Artist Marketing Platform, (AMP) is designed to establish Pandora as a go to CRM platform for every musician looking to build fan connection and patronage. This is a classic two-sided marketplace, listeners and artists engaging and transacting on one centralized platform, a service that unifies the entire music experience, radio, on-demand, live performance and artist or band connection on every device in every car, in every location, music where and how you want to hear it.
The AMP has a number of elements to it:
- Identity - artists are able to manage their own brands via profiles.
- Promotion - traditional email and push notifications as well as the new AMPcast mobile messaging platform, which allows artists to record and release an audio message targeted to the entire fan base from a mobile phone.
- Content - original content, including mix tapes, pre-releases, concert streaming, interviews, and studio session recordings.
- Analytics - Pandora data can be combined with social and contextual information, enabling artists to see how everything they do across digital platforms and traditional media impacts listener engagement and reach.
The APM is scoring early success - over 6,000 artists are profiled, over 1,000 artists have posted Artist Audio Messages and 200 million impressions have gone out to listeners.
In pursuit of this marketplace strategy, Pandora is following the lead of other digital success stories, concluded Westergren:
We will not be shy about moves that we view is driving strong leverage into what is well on its way to becoming one of the truly great Internet marketplaces. It was this kind of confidence and long-term thinking that created such great opportunity for the likes of Amazon and Netflix. Like us, they both quietly built huge underlying strategic advantages and parlayed that into pricing and marketing advantage to extend their businesses and capture adjacent markets. We are following a similar playbook.
At the end of the day though, Westergren harked back to his musician roots and argued that this will help in negotiations with the power players in the music industry:
I think it's very confidence inspiring for them to have a musician at the helm of the company, who does genuinely have their interests at heart and understands how the industry works.
Where I think it matters that we are fundamentally a music company and now run by a musician. They want allies, they want folks who are looking out for their long-term interest and they have that in Pandora.
Having met with the heads of three major recording industry firms in his first week as CEO, Westergren can note the irony of the situation:
I was a former working musician trying to be in the offices of folks, I tried to get their attention when I was a musician, but I couldn't.
I’m instinctively deeply unsympathetic to pleas from vendors that their messaging is not properly understood. “We’re the best kept secret in the industry” just brings a reaction of “Well, whose fault is that then?”.
That said, Westergren made an articulate case for Pandora’s past successes and future strategies. The marketplace is a sound idea.
But the main pain point remains the same - paying subscribers only make up 3.9 million of those users cited by Westergren. His pitch on that is inevitably a glass-half-full:
The vast majority of Pandora listeners have not subscribed to anything. So it's a great opportunity for everyone.
That remains to be seen.