Pandora plans on-demand music and global expansion in dramatic strategic growth plan

pandora logo crystal

Yesterday’s announcement that Pandora intends to acquire Rdio assets in a bankruptcy auction focused attention on Rdio’s unpredicted demise. An examination of Pandora’s remarks during a conference call flesh out how the acquisition fits in to Pandora larger plan. CEO Brian McAndrews used the Rdio acquisition as a pivot point to sketch a dramatically enlarged strategic vision for his company, one which contained specific answers to two topics he has skirted during this year’s earnings calls: global expansion, and on-demand service.

“Today is an important day for Pandora as we announce another step forward to strengthen our position as the world’s most powerful music discovery platform and drive the company toward long‐term growth,” McAndrews began. “I want to take this opportunity to provide the broader context of Pandora’s vision and clearly lay out our strategy to deliver on the next chapter of Pandora’s growth. We have an ambitious plan for our future.”

Brian McAndrews, CEO, Pandora

“We forever changed the landscape of radio as it had been known for nearly a century.” –Brian McAndrews, CEO, Pandora

A New Vision and Plan

The headline points are that Pandora is planning a much greater reach than the current US-centric business (plus New Zealand and Australia currently), and that an on-demand platform is also part of the vision. Both new dimensions would dramatically alter Pandora’s consumer service profile, and broaden its competitive mission. Along the way, McAndrews noted his intent to diversify revenue: “By taking a marketplace approach, we expand the total monetization opportunity available to Pandora from the $40‐plus billion dollar US radio and digital advertising opportunity to something that is multiple times larger.”

Brian McAndrews called the plan “a truly transformative vision for our future, positioning Pandora to become the definitive source for music enjoyment and discovery globally.”

The specific roadmap has Pandora as the leading brand umbrella for music delivery, reaching into the entire scope of the online audio industry. That means continuing its leadership role in non-interactive Internet radio, developing an on-demand platform alongside the radio listening, and bringing the entire experience to listeners around the world. This new conception of Pandora would put the service into more explicit competition with Spotify, the global leader in on-demand music subscription, which also operates an ad-supported, radio-like experience. (The Spotify app calls that portion of the service “Radio.”)

“[We will] expand our core business and enter new adjacencies, bringing immediate differentiation and competitive advantage,” McAndrews said. “We intend to be the go‐to music destination, unifying the full music experience under one roof, spanning radio, on demand, and live music. In sum, we will provide music where you want it, how you want it, and for everyone who wants it.”

“The industry has no more dependable ally than Pandora.” –Brian McAndrews

Core Beliefs

McAndrews specific Pandora’s “core beliefs” — the sort of elaborate mission statement that companies put up on their office walls. The first three core beliefs are present-tense definitions of Pandora’s positioning in the online music ecosystem:

  1. Establishing productive and collaborative partnerships with music makers puts Pandora in the strongest possible position to deliver on our long‐term vision.
  2. We are a music company.
  3. Discovery, personalization and effortlessness are the greatest strengths of Pandora.

The fourth core belief is a future-tense redefinition of Pandora’s music service and business strategy: “The music industry’s brightest future lies in monetizing the entire spectrum of music listening; from ad‐supported Internet radio to full on‐demand paid subscription.”

“We have only scratched the surface of the radio opportunity, both in the US and globally. […] Pandora will continue leading this evolution.” –Brian McAndrews

Industry Relationships

There is an obvious, though shrouded, connection between the acquisition of Rdio assets (mainly technology, intellectual property, and talent) and Pandora’s planned build-out of an on-demand service. The two hills to climb are product development and label relationships — the second arguably representing a steeper hill. Rdio’s label agreements are not transferable to Pandora. McAndrews didn’t hit that point exactly in the investor call, but he did refer generally to label relations: “We’re having far more constructive conversations with the industry than we have ever had before, and we are building the partnerships necessary to unlock Pandora’s next chapter of growth.”

He spoke of “securing agreements with labels and publishers,” and said, “That is exactly the path we are on.”

Pandora’s immense data collection and harvesting machinery is part of the vision, and McAndrews noted that it could extend from the radio side to the on-demand service beneficially: “Our vast knowledge about listeners’ musical preferences can do amazing things for both the lean‐back and lean‐in music experiences.”

A Plan for All Contingencies

The great uncertainty in Pandora’s future is the Copyright Royalty Board (CRB) ruling on webcaster royalty rates to record labels, expected to be delivered in the next 30 days. Pandora, along with its stock investors and all webcasters, have been living with a crucial cost uncertainty during 2015. How does Pandora’s ambitious and evangelical strategy wrap around the possibility of substantially high, or lower, cost of music?

That question was addressed by CFO Mike Herring in yesterday’s call. “It was our analysis that, if the CRB outcome is unfavorable, the contribution margins we can expect over time from our ad‐supported line of business will obviously decrease. In this scenario, having other revenue streams to focus on such as subscription businesses and live events promotion gains importance. On the other hand, if the rates are reasonable our ad‐supported business will provide continued investment dollars and we will have more options to invest those dollars.”

In other words, to paraphrase, “We’re good whichever.” Herring noted that Pandora has $180-million in the bank, and can comfortably close the Rdio deal ($75-million) and continue to invest in the company’s ambitious expansion plan.

The Summary

Brian McAndrews voiced the new Pandora vision in a statement that is worth quoting in full:

“Pandora is creating the world’s definitive music discovery platform, unifying the full music experience for fans in one place. We will do this by building off our industry‐leading Internet radio offering and expanding into other listening options. This ambitious platform approach brings together music fans, music makers and advertisers in a marketplace that benefits everyone, with Pandora at the center. This marketplace will be powered by data‐enabled tools to help music makers grow, engage and monetize the massive Pandora audience across both live and recorded music experiences. This increased participation of artists, the expansion of listening options and the access and discovery of live music will in turn drive additional fan engagement. And then, this expansion of fan engagement across the entire music experience will attract additional advertising and sponsorship dollars. At the same time, all of these activities will provide important data with which the flywheel can be optimized. And the platform cycle repeats.”



Brad Hill

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