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Pandora earnings: Premium in perspective, programmatic on deck


A month after Pandora turned a corner with a new CEO, new board members, and new minority owner, the company released Q2 earnings. During the webcast investor call interim Chief Executive Naveen Chopra went through the basic financial metrics and took questions from investors. See our coverage of the financials here.

The investor Q&A usually provides the most interesting content, as company execs are forced to put down their prepared talking points (to an extent) and address deep-dive questions from institutional investors. Following are key information points from the Q&A:

Audio programmatic is (finally) on the way

Pandora does sell inventory programatically, but it is display ads, not audio spots. For a few years, the company has said it is keen to enter the programmatic audio market, but only when the time is optimal — without much clarification about optimal indicators. Yesterday, Naveen Chopra clearly stated an expectation to enter audio inventory programmatically in Q4. Projected timelines can slip, but this is the first time Pandora has put a timetable against audio programmatic. Beyond that, no specifics of whether it would be a private marketplace, or pitching into an established one.

Finessing the role of Premium

Pandora Premium, the top-level, on-demand subscription product that competes with Spotify Premium, Napster, Deezer, Apple Music, and Amazon Music, has had a rough early life. Introduced with fanfare at a glitzy New York media event last December, and formally launched in March, it was the company’s main focus from November, 2015, when Pandora acquired the bankruptcy remnants of Rdio. The service and its underlying label relationships were key to a new future.

But when then-CEO and Founder Tim Westergren left the company in June, and Sirius XM entered as a 19% invested owner, Pandora Premium was tossed onto the back burner like an overcooked pot roast. Ad-supported free online radio regained top focus as the company’s main opportunity.

Yesterday, talking to potentially dizzy investors, the company regained some balance with Naveen Chopra’s nuanced statements. “It’s still early days, and Pandora Premium is still an important part of the portfolio,” he said. “We continue to believe that a competitive on-demand product is critical.”

He sketched a guiding strategy in which each Pandora user finds a sweet spot, where one of Pandora’s optimized products can retain them long-term. Ad-supported free listening remains the biggest on-ramp. From there, if a listener wants more interactivity, the data and marketing funnels exist to position that person at the correct service tier. In this view, “ecosystem” is the oft-mentioned key word, wherein the Plus and Premium levels are mission-critical without taking the marketing lead.

390,000

As long as we’re talking about Premium, what about subscriber number? It stands at 390,000. Chopra declined a specific request to break out how many of those are trials. In our opinion, that number is fine for a service that launched widely just three months ago, especially as the Pandora brand is not well known for on-demand music. But for that very reason, it’s easy to understand the push-down of Premium by the company’s new leadership. Spotify has 60-million subscribers, as we noted yesterday, and Apple Music has about half that many — and those two populations are probably unduplicated for the most part. The on-demand competition is daunting, and Pandora’s late start is significant. On the other side of the tactical fence, Pandora is the clear, way-ahead, imperialistic market leader in non-interactive online radio.

What about international expansion?

A key aspect of building Pandora Premium, which required negotiating non-statutory royalty agreements with labels (different from the government-regulated royalties on the radio side) was international expansion. To fully compete with Spotify and the other established services, Pandora had to venture beyond the friendly confines of America, Australia, and New Zealand. (ANZ, as Pandora abbreviates those two regions, make it easy, but other countries don’t.)

Notice the past tense in the above paragraph. International expansion is on the back burner again, along with Pandora Premium. In fact, the company is shutting down its ANZ operations, too. So, along with refocusing on ad-supported listening, the company is narrowing its view to the U.S. ANZ didn’t amount to much in the financials. In the earnings call, Naveen Chopra said “the biggest opportunity” several times, referring to the ad-supported U.S. business. The company seems to be targeting its reboot, and its new investment, by getting leaner and more tactical. The old is new again. Pandora is full-on targeting listening and advertising share of U.S. radio. With Sirius XM in the sidecar, that competition is more intense than ever.

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Brad Hill

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