Pandora Radio: Strategic Analysis and Recommendations
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This document provides a strategic analysis and recommendations for Pandora Radio. It summarizes Pandora's business model, history, financial performance, competitors, challenges, and opportunities. Key points include: Pandora was founded in 2000 and launched as a public company in 2011. It has struggled with significant net losses each year due to high royalty fees. Recommendations include harnessing big data to better target ads, acquiring a local media company to expand advertising channels, and varying subscription content like the film industry.
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Pandora Radio: Strategic Analysis and Recommendations
- 1. Pandora Radio Strategic Analysis & Recommendations By Christophe Carington
- 3. Who What When Where Why • Founded by Will Glaser, Tim Westergren & Jon Kraft • Non-interactive music streaming service: internet radio • Founded in 2000, Public in 2011 • Headquartered in Oakland, CA • To create individualized radio stations for each user, that only included their idea of“good” musicSources: 1, 2, 4
- 4. How • Creates no content, only a platform • Pays multiple licenses for content • Each song is evaluated by music specialists on up to 450 music traits • Create stations based on artists, songs, genres, holidays, etc. • Automated music recommendation program: Music Genome Project • Revenue from advertisements & ad free paid subscriptions Sources: 3, 4, 5, 6, 7
- 5. Current Problem -11.82 -13.99 -28.23 -16.75 -1.76 -38.15 -27.02 -30.41 PANDORA NET LOSS: 2006-2014 (IN MILLIONS) Sources: 8
- 6. Current Problem 244 430.3 746.9 -43.1 -80 -93.1 2011 2012 2013 SPOTIFY REVENUE & NET LOSS: 2011-2013 (IN MILLIONS) Revenue Net Loss Sources: 11
- 9. Current Strategy Restrict the # of listening hours to free users Increase the cost of their paid service Lobby to lower licensing rates Sources: 4, 9, 10
- 11. Pandora can only be listened to in the USA, Australia, and New Zealand because of licensing constraints. Pandora Political Economic SocialTech Legal Sources: 4
- 12. Rates for Pandora One are increasing due to increasing royalties. Pandora Political Economic SocialTech Legal Sources: 9
- 13. Population demographics: Heaviest Users Pandora Political Economic SocialTech Legal Sources: 12, 13
- 14. Pandora’s Market Share of Internet Radio Sources: 21
- 15. Pandora is available to all smart phones. Now available in newer car models. Music Genome Project. Pandora Political Economic SocialTech Legal Sources: 4, 9, 12
- 16. Current laws have not caught up with the digital age. Hasty legislation has led to flux in the industry. Pandora Political Economic SocialTech Legal Sources: 4
- 17. 2 Types of Buyers: Subscribers Advertisers Competitors Buyers Entrants SuppliersSubstitutes Complements Sources: 4, 14
- 18. Revenue by Buyer Sources: 14
- 19. Easy to enter internet radio industry based on technology, but very expensive. Competitors Buyers Entrants SuppliersSubstitutes Complements Sources: 4, 14
- 20. Licenses Paid by Radio Sources: 14
- 21. Royalty rates determined by “willing buyer, willing seller” methodology. Competitors Buyers Entrants SuppliersSubstitutes Complements Sources: 3, 4, 8
- 22. New technology trends lean heavily towards digitization, not traditional music mediums. Competitors Buyers Entrants SuppliersSubstitutes Complements Sources: 15, 16
- 24. Mix of internet and radio create best scenario for advertisers: it drives Pandora’s success. Competitors Buyers Entrants SuppliersSubstitutes Complements
- 25. Pandora has first mover advantage; most competition is growing slowly. Competitors Buyers Entrants SuppliersSubstitutes Complements Sources: 4, 7, 8, 16
- 26. Results of First Mover Sources: 16
- 27. • Strong and recognizable brand name • Music delivery and advertisement platforms • 125 million registered users • Proprietary music choice algorithms Resources • Individual song analysis • Discovering new songs and genres of music • Personalizing user content by following user preferences Activities • Expanding further into the car market • Increasing its registered customer base • Adding additional features other than music Capabilities Sources: 4, 8, 12, 20
- 28. Valuable • Yes • multiple delivery platforms • business solution • Pandora Advertising CostlytoImitate • Yes • first real music subscription service • dominant market share Rare • Yes • Music Genome Project • “Quick Mix” OrganizedtoCaptureValue • Moderate • considered a “free” service • dependent on ads • high royalty fees Sources: 4, 8, 12, 19
- 29. The Music Genome Project is an effort to capture the essence of music at the most fundamental level. It uses over 450 attributes to describe songs. Songs are chosen by a complex mathematical algorithm to organize them. Core Competency “The ability to predict user tastes and preferences”
- 30. Content Creation • Artists, Producers, Record Labels, Studios Content Packaging • Pandora’s Music Genome Project Content Distribution • Internet Service Providers User Interface • PC, Mobile, Automobiles End User • Subscribers Vertical Integration Feedback: Thumbs Up & Down Sources: 4, 20
- 31. Strengths • brand and reputation • experience in the online music streaming industry • Music Genome Project Weaknesses • only 1 group of users contribute to revenue • high cost of royalties per song • only accessible with internet/Wi-Fi • present in only 3 countries Opportunities • further expansion in auto market • expand into other markets and form partnerships add more features > incentive to subscribe Threats • royalty expenses can continue to increase • more competitors on the way Sources: 3, 4, 6, 7, 8, 9, 12, 13, 14, 15, 16, 17, 19, 20
- 33. Harness Big Data Sources: 22, 23 Proposal #1
- 34. Sources: 22, 23 Proposal #1
- 35. Pandora Analytics PRIZM for Music Market Segmentation Proposal #1
- 36. Vertical Acquisition • Why? • Focus on localized advertising • How? • Acquire Townsquare Media (TSQ) • Why TSQ? • Compete with iHeartMedia • Target localized advertising • Gain access to multiple advertising channels Sources: 24, 25, 26 Proposal #2
- 37. Sources: 24, 25, 26 • Music Streaming • Radio • Advertising • Local Media (Radio) • National Media (Websites / Print) • Live Events • Marketing Service • Radio • Live Concerts • Real-Time Traffic • Media Research Service • Program Areas of Operation Proposal #2
- 38. Vary Content & Offer A-La-Cart • Offer more variety in listening material for paying users • Newscasts • Talk shows • Audiobooks • Foreign Artists • Have different levels or combinations of subscriptions • Only pay for what you want to listen to • Newest content available exclusively for paid subscribers Sources: 27 Proposal #3
- 39. Take Cues From Film Industry • Both industries have suffered because of digital piracy • Both industries are moving towards streaming models • Film industry is doing very well • Music industry is not Sources: 28 Proposal #4
- 40. • Most-to-all of an artist’s catalogue • Once available, always available • Content available almost immediately • Single paid subscription level • Does not create content • Selected pieces of an artist’s catalogue • Limited time availability • Most content only available months after release • Multiple paid subscription levels • Creates content based on data Proposal #4Sources: 4, 28
- 41. Sources: 28, 29 Proposal #4
- 43. Bibliography 1. http://www.inc.com/magazine/20071001/pandoras-long-strange- trip_pagen_2.html 2. http://www.cabot.net/news/2011/06/pandora-ipo 3. https://www.pandora.com/about/mgp 4. http://law.unh.edu/assets/images/uploads/publications/idea-vol54-no1- ritala.pdf 5. https://help.pandora.com/customer/portal/articles/24788-royalties-and- spins 6. http://help.pandora.com/customer/portal/articles/84831-create-a-station
- 44. Bibliography 7. http://services.corporate- ir.net/SEC.Enhanced/SecCapsule.aspx?c=227956&fid=7370852 8. http://investor.pandora.com/phoenix.zhtml?c=227956&p=irol-irhome (10- K forms only) 9. http://blog.pandora.com/2014/03/18/6128/ 10.http://www.politico.com/story/2014/05/music-industry-copyright-lobbying- 106490.html 11.http://www.theguardian.com/technology/2014/nov/25/spotify-revenues- 2013-losses-streaming-music 12.http://www.slideshare.net/dilausj/market-analysis-of-pandora 13.http://www.alexa.com/siteinfo/pandora.com
Notas do Editor
- So lets start with the basics
- So, before I get to Pandora’s current strategy, let me tell you what their problem is: they’re losing money. A lot of money.
- Spotify is also loosing money
- First off, Pandora is known as non-interactive steaming: which means you have very little control over what music is played. Interactive streaming is like Spotify. Essentially, the more control you have over the music you listen to, the more licenses you have to pay.
- 50% for Pandora, and 70% for Spotify. We don’t know what radio stations pay, but if you think about each individual radio station and the music they play, it’s probably a lot less than any streaming service. Pandora is even currently getting a discount on the royalties it pays, but that discount ends this year. Furthermore, Pandora and other streaming services have been under fire for years for not adequately compensating artists for their content.
- So, what is their current strategy? Well, they’ve restricted how many hours per month free users can listen. They also increased the cost of their paid service from 3.99 a month to 4.99 a month. Finally, they’re lobbying to lower licensing rates, arguing that they are bad for their business model. I do want to point out that that lobbying to lower licensing rates is a catch 22. Pandora needs to incentivize musicians to keep creating content for them. Musicians already make less through streaming than any other medium, and some, such as Taylor Swift, have pulled their music from streaming services. Other companies who have tried to avoid paying the royalties, such as grooveshark, have gone bankrupt.
- Population demographics: Age: Primarily under 18 and 18-24; some 24-34 Location: Mostly listed to in car and work locations Latino listeners make up 25% of Pandora’s listeners
- Make a side comment about Environment not being applicable. Many of the laws are very old, and were not created for the digital age. There’s been hasty legislation. Talking how their discounts on royalties expire this year.
- Bargaining power of buyers - 2 types of buyers Subscribers that pay for no advertisements Power: high, subscription only account for a small amount of Pandora’s income but users can still consume its product (music streaming) for free. End users can have low switching costs Advertisers that pay for ad time Power: medium, advertisers have little costs switching to other radio mediums but still pay increasingly more for time slots with Pandora
- Threat of new entrants - Medium Entering the internet radio industry is easy because of new technology innovations but costly due to royalties and preferential treatment if it emerges from a terrestrial radio broadcaster. We’ve seen large companies (Amazon, Google, Apple) dive into this digital music but not internet radio.
- Copyright Act - Pandora must pay a royalty fee depending on the music included in its services “non-interactive” station - fewer licenses than interactive stations (Spotify) but does not receive statutory rates like XM and traditional radio stations Royalty rates determined by “willing buyer, willing seller” methodology which means negotiation or arbitration. It does not encourage intervention by law Pandora pays 50% of its revenues for royalties currently and negotiations are renewed yearly
- Threat of substitutes (Non-digital music providers) - Low New technology trends lean toward digitization - does not seem likely to shift back to traditional radio Most of radio listening time is in a car but not many listen to internet radio Pandora working with car makers to become FM/AM/XM radio substitute in cars
- Strategic role of complements (advertising) - extremely high Mix of internet and radio create best scenario for advertisers, drives Pandora's success It’s not the main service Pandora delivers to end users Advertisers get access to listeners on a national scale with more precision - it has the data collection to create user targeted ads
- Competitor Rivalry - medium-high Pandora benefits from first mover advantage Has the largest and well-known presence amongst all competitors Industry growth is slow to catch up even though there are emerging alternatives for digital music/streaming Revenue across all boards for digital music is losing profits so rivalry is expected to increase
- It provides basic demographics related to tracking stations, songs, audience, performance, listener reception, and audience composition. However, this is only a step in the right direction. Now let me show you another part of Pandora AMP
- Do you see how specific these categories are? Disco influences, electronica roots, an emotional male vocal? This type of insight could be very valuable for people who know their target market. Offer a similar, but searchable interface to retail stores, marketers, and music supervisors (music supv. are the people who choose what music goes in movies and tv shows). These people already know their target market. If there was a way to enter different demographic variables, and then get music preferences based on those variables, it could be revolutionary. Pandora could market this new product as almost the “PRIZM for Music”
- Pandora could market this new product as almost the “PRIZM for Music”
- Focus on localized advertising Acquire Townsquare Media (TSQ) to create omni-channel operation TSQ is a diversified media company that has touchpoints in radio, digital, and live event properties Why TSQ? Would create a vertical operation in digital area to compete with iHeartMedia (formerly Clear Channel) Pandora advertises on a regional and national level, TSQ targets localized advertising Leverage its scale to expand TSQ brands to create leaner, local advertising channel based on need/seasonality
- Pandora: Radio, Advertising TSQ: Local Media(Radio), National Media(Websites/Print), Live Events, Marketing Services iHeartMedia: Radio service, live concerts, real-time traffic and media research services, program syndication
- Both industries have suffered because of priacy in the digital age. Both are artistic outlets that are moving towards streaming models. However, the film industry is still doing very well comparied to the music industry.
- I’m going to use Netflix as a very general model: selected pieces of artists’ catalogue. Limited time availability. Most content only available months after release. Creates own content based on data analytics. Different subscription levels. Could perhaps pay extra for early access to content. Pay $.99 for week long access to a new album.
- When the rights to original house of cards was up for purchase, Netflix simply looked at their massive stash of data. Subscribers who watched the original series, they found, were also likely to watch movies directed by David Fincher and enjoy ones that starred Kevin Spacey. Using their own data, they could formulate a hit show for certain audiences.