Yesterday. There were acquisition rumors. There was an earnings call. There was a jittery-up-and-down stock price. In the middle of all that, Pandora CEO Brian McAndrews laid out the company’s key lines of strategy in this ambitious and pivotal year.
The setting was Pandora’s quarterly earnings call to investors. (CLICK HERE for the financial details.) In it, McAndrews divulged more specifics about the company’s pivot into interactive music listening, first disclosed in November when Pandora acquired staff and technology from the suddenly bankrupt Rdio service. At that time it became clear that Pandora was setting the stage for more direct, head-to-head competition with Spotify as a dual service that offers both ad-supported Internet radio, and subscription-funded cloud music access.
“Simply put, it is a generational opportunity to drive the future of music for years, if not decades, to come.” –Brian McAndrews, CEO, Pandora
The chief executive emphasized that the core radio business had its own aspirational growth track. “We are leading the disruption of a $17 billion radio advertising market,” he said, noting that revenue from advertising grew 27% in 2015 to $933-million. He mentioned the many so-called Pandora-killers which have come and gone, then aimed his rhetorical gun on iTunes Radio — certainly the most unabashedly promoted Pandora-killer the media has ever flaunted. “We saw iTunes Radio cease to be a free advertising-supported product, underscoring what we have known for a long time: Building a business like we have is very difficult, and we now have a huge lead and advantage that is incredibly challenging for new entrants to overcome.”
McAndrews also emphasized the present and future growth of connected devices, especially cars — a category of usage that Wall Street investors don’t necessarily have patience for in the quarterly earnings drumbeat. McAndrews rattled off footprint stats: 100-million phones, 1,700 consumer electronic devices (e.g. WiFi speakers), and 190 car models that feature native Pandora installation.
Cars are especially important, though a slow-moving evolution. “With the opportunity to double hours by achieving our fair share of listening in the car alone, it bodes extremely well for Pandora as the connected car becomes more and more of a reality in the coming years,” McAndrews said. He cited over 15-million auto activations of the Pandora service, driving a 55% increase in car-listening hours. Furthermore, users who activate Pandora in their cars increase their time with the service an average of 24%. “We are growing and investing where the consumption model is heading, fueling future growth for years to come for Pandora,” McAndrews asserted.
All this led to a top-line estimate of Pandora’s radio business growing to $2.4-billion over the next five years. Alongside that, McAndrews projected the still-to-be-built on-demand business to $1.3-billion over five years. He called that estimate “conservative,” based on a 10% conversion of radio listeners. (There were 80-million unique listeners in December.)
All in, McAndrews predicted this revenue growth: “The above projections take Pandora to a $4 billion-plus revenue business in the U.S. alone in five years.” That projection is filled out by concert ticket sales, a line of business initiated when Pandora bought Ticketfly. Note also that Pandora is publicly planning to expand geographically, a new territorial reach made possible by direct-negotiated music label licensing deals that cross national boundaries.
McAndrews: “Let me simply say that we have a big year ahead.” Undeniably. One question is this: When will the on-demand, subscription-based music service be brought to market? Recent public statements indicated second half of 2016. Brian McAndrews reset assumptions slightly for investors by pushing “meaningful revenue” from that new business into 2017: “In terms of the timing of our full offering with on-demand, we do not expect meaningful revenue from on-demand in this year. We expect to be in the market, we hope to be in the market by the end of the year, but more generally available in early 2017, and that presupposes that we do of course have agreements with the labels at that point.”