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Pandora CEO Joe Kennedy resigns

Longtime Pandora chairman, CEO, and president Joseph Kennedy will step down, the leading webcaster announced late yesterday.

Kennedy will stay on in his current capacities until his successor is named. Pandora’s Board of Directors has formed a search committee and is hiring a search firm to identify likely replacements.

Kennedy, who has led Pandora since July 2004, said, “I am incredibly proud of the team and what we have accomplished in redefining radio.”

Under Kennedy’s leadership, Pandora became far-and-away the leader in Internet radio, with over 67 million monthly active listeners, and the largest radio presence in nearly every major U.S. market, with over 8% of total U.S. radio listening. Pandora now has a sales presence in over 28 major markets.

In fiscal 2013, the company earned $427.1 million in total revenue, and $255.9 million in mobile revenue.

RAIN Analysis: I believe that Joe has done a terrific job for Pandora over the past decade, building it to point where Pandora is the leading brand of radio in virtually every U.S. market — including what I believe calculates out as a commanding lead in the P18-34 demo in each market.

On the other hand, the medium of Internet radio continues to be challenged by a difficult regulatory environment, due to a poorly-worded royalty rate-setting standard in 1998’s DMCA, leading to Copyright Royalty Board judges continuing to set royalty rates, with every one of their decisions, that would bankrupt most of the industry (and require emergency Congressional action each time to fix. Fortunately, as you know, there’s a movement underway in Congress — with bills that were introduced last year in both the House and Senate — that will hopefully fix that rate-setting standard).

Because Joe has had to compete with other forms of digital radio — satellite and cable — that pay only 8-15% of their revenues in royalties (while he’s had to pay over 50%), he’s been constrained in what he could spend on building his sales force and doing traditional advertising for his product. Given those constraints, I believe his performance has been extremely impressive.

By the time Joe retires from the company, Pandora will probably have close to a 10% share of radio listening in every U.S. market, and has almost single-handedly made “personalizable radio” the clear future of music radio in the U.S. and probably the world, with benefits for consumers, musicians, and advertisers. That’s a pretty good accomplishment! — KH

To illustrate Kurt’s point regarding Pandora’s royalties in relation to its revenue, take a look at the following chart. It’s from Statista (here), and is based on Pandora’s recently-announced fiscal 2013 earnings (h/t to Hypebot). It clearly shows that Pandora’s content acquisition costs (royalties) are growing faster than its otherwise impressive revenue increases.

Brad Hill

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