Pandora earnings Q&A: Marketing, advertising revenue, and broadcast “weakness”

pandora-logo-p-2016-use-this-210x210Yesterday we covered Pandora’s Q3 earnings report (which the company called Analyst Day), with financials and a summary of Pandora’s projected subscription growth over the next three years.

Here, we take a deeper dive into the investor call with context and quotes.

Marketing the Upcoming “Premium” Service

Pandora’s on-demand service, which will probably launch by end of year or early in 2017, is called Pandora Premium (and will directly compete with Spotify Premium). In the earnings call, one investor asked how it will be marketed. Pandora execs emphasized that there is a large base of existing users. “It’s important to understand that we have a lot of listeners on this platform today.” Pandora gets 100-million unique users per quarter, and intends to propose trial memberships to new subscription plans. 

“We can do really precise almost surgical marketing to reach listeners and tell them about these new offerings, whether it’s Plus, or it’s Premium, we’re going to have some very attractive trials […] that we think are going to be very appealing to help move listeners up that curve as well.”

The company also talked about “reinvigorating” the user base and luring back past users who have drifted away. “We’re also going to bring people back.”

Pandora’s Ad Sales Force

Pandora has 154 sellers in local teams spread across the top 30 markets in the U.S. “It’s been essentially flat,” Pandora reported in the call, explaining that the sales force was the same size a year ago. A reason for the non-growth? Money needed to build the on-demand service product.

“We took $120 million that we could have invested potentially in driving ad sales and into launching Plus and bringing Premium to market early next year. So, that was a conscious decision. We think, we have delayed our ability to penetrate that market by a year, but we don’t think that we lost any competitive ground from that perspective.”

Shift to Video (Ads)

While Pandora did not promise to resume investment in the sales staff next year (“It’s too early [to say] what we’re going to do next year from that perspective.”), Pandora did note that video advertising could form a bigger part of the inventory mix. 

With all the video demand that’s happened over the last few years, we’ve had very little piece of that because we just don’t have – we’re an audio platform and the viewability of video is hard to justify. That’s changed a lot over the last few years with sponsored listening and with the skips and replay functionality, where you have to be engaged with video, and we’ve really grown our access to that market significantly.”

“We’re just focused on driving demand for advertising revenue.”

International Participation in Future Subscription Revenue

Pandora is a U.S.-centric service that is also available in Australia and New Zealand. With the company’s newly forged label/publisher licenses, one of the most interesting dimensions of 2017 will be international expansion and business metrics flowing from the entry into new markets.

Founder/CEO Tim Westergren conveyed some interesting history to explain why he expects robust international demand.

“When we launched Pandora for about 18 months back in 2005, we weren’t blocking listening internationally. You could log into Pandora, just pretend you’re a U.S. resident by typing a fake U.S. zip code and use Pandora. And for 18 months our most popular zip code was 90210 on Pandora by a wide margin. Obviously, it didn’t reflect the population in the city of Beverly Hills. There was massive demand for Pandora outside of U.S. […] So we know the appetite is out there.”

But the company focus remains substantially on growing the U.S. opportunity with new services.

As a company we are all of course eager to get back to the global experience. That said, we are focused on crushing it here in the U.S.”

“Still in Early Days”

One investor asked about Pandora’s growth ambition for advertising revenue. Company President/COO Mike Herring framed his answer in the idea that Pandora sits near the start of a long business cycle.

“We think that the advertising opportunity is huge and we’re just still in the early days of penetrating that opportunity considering the size of our audience. And frankly, especially on broadcast the weakness in competition.”

Herring noted that ad load (number of ads per hour of listening) has been “static” for a few years, opening the possibility of increasing the load.

Brad Hill