March 20, 2012
While some still debate whether Pandora is a form of radio or not, the service itself continues to expand its audio empire. Its "player" initially was found on computers, but its popularity exploded once it found its way into mobile phones. Now Pandora's aggressively working its way into more automobile dashboards. Despite concerns about a painfully high royalty rate and living up to Wall Street expectations, Pres./CEO Joe Kennedy remains bullish on the company's future. Here's why...
What made you decide to join Pandora from E-LOAN?
I fell in love. The opportunity to work on the ultimate problem in music -- how do you enable people to discover and enjoy music they love -- completely captured my imagination. I joined the company almost eight years ago, back when it was still Savage Beast Technologies, Inc. and making software for kiosks in Best Buy music departments. The vision for what everyone now knows as Pandora came shortly after that.
How did you view the IPO then ... and now? Are you as bullish ... more bullish ... or more cautious due to the increased competitive situation?
I'm more excited than ever about the opportunity we have ahead of us.
How has the competition of Spotify, iHeartradio and others impacted Pandora?
Not at all. The data we have published clearly shows that our extraordinary growth has continued on the same exponential trajectory. Delivering the best personalized radio experience in the world creates a tremendous opportunity for us and we have just begun to scratch the surface of our potential to redefine the entire radio industry.
Do you pay attention to what they do, or do you solely concentrate on improving your own product?
Of course, we study everything that is developing in digital music -- and in fact, digital media more broadly. That said, we are laser-focused on delivering the best personalized radio experience in the world and making that experience better and better over time. Playing the right songs for every single individual who listens to Pandora, with just the right repetition, variety and discovery is wickedly hard and far from solved as well as we think it can be solved. We're constantly innovating with new approaches and solutions ... and have been doing so for more than 10 years.
At the time of the IPO, when asked about when Pandora would turn profitable, you said you "weren't putting a time frame on it." Now, nine months later, it seems that Pandora might break even this fiscal year. Can you now foresee or predict profitability on the horizon?
We did have a profitable quarter last year but our primary focus at this point is on maximizing the long-term value of the company by investing in the extraordinary opportunity we have to redefine radio.
Some pundits assert that the royalty rate is so high that the more users you have, the more difficult it is to turn a profit. How do you respond to that perspective?
While the rates we pay are unfairly high -- dramatically higher than terrestrial and satellite radio, both of which we compete with directly for listeners, advertisers and subscription revenue -- our monetization strategy and execution are so strong that we can build an attractive business even at these rates. Looked at on a stand-alone basis, our desktop business is already operating at a financially attractive level of monetization. Over time, as the mobile advertising market matures, we believe we can achieve similar levels of monetization on the mobile and other connected devices that now represent the majority of our usage.
Do you plan on lobbying the copyright owners on a lower rate?
We look forward to participating in the arbitration process that will set royalty rates for our use of sound recordings for the 2016-2020 time period.
How do you see Pandora generating more revenue?
We are excited about the incremental revenue opportunities that are arising as the mobile advertising market continues to mature and as we begin to attract more and more money from traditional radio advertisers.
Are there new revenue streams Pandora can mine -- and what would they be?
Each week 235 million Americans tune in to broadcast radio, which is free to the consumer and supported by advertising. Our great opportunity is to provide all of them with a dramatically better experience. The business model to do that is advertising-based and we remain focused on that model.
There was a rather ironic turn of events a while back when after traditional radio interests spent months denying that Pandora is a kind of "radio," the largest radio company in the country then decides to take radio out of its name. Do you still consider Pandora to be radio? If so, why? What virtues do you find in that name?
Pandora is personalized radio. We combine the best of what made radio so successful in its old form -- it was free, incredibly easy to use, available everywhere, and enabled people to discover new music -- with new capabilities that Internet technology has enabled: an engaging, personalized experience.
After creating a very popular app to infiltrate smartphones, Pandora seems to be devoting its energies into getting into automobile dashboards. When do you think you'll hit critical mass and be available in any and all makes and models?
Toyota, Honda, GM, Ford, Hyundai/Kia, Mercedes and BMW have all announced Pandora integrations and have already begun to roll Pandora out across their models. The automakers control the rollouts and when the associated announcements are made, but suffice to say that we love the progress we've made so far.
Once that is accomplished are there any other areas where you'd like to get Pandora into ... airlines? Hotel rooms?
Our goal is for Pandora to be everywhere people listen to music.
You and Tim Westergren are making the rounds of the financial conferences such as Morgan Stanley and Deutsche Bank. What the benefit of doing those?
As a public company we have a responsibility to meet with and update our investors on a regular basis.
Is the selling and marketing of perceptions that important to generating a positive momentum for the business itself?
The foundation of our success is delivering the best personalized radio experience in the world.
Do you ever worry that "selling" Pandora to the stock market can get in the way of optimizing the business itself?
Pandora wasn't listed as one of the online radio sources whose spin data will be incorporated into Billboard's Hot 100 singles chart. Would you have like to be included as part of that chart?
We have an absolutely enormous amount of data, many times more than all of the services on the Billboard list combined (as our last release press release detailed, we streamed almost a billion hours of music in the month of February alone); potentially giving all of our data away is something we'd have to devote a considerable amount of thought to.
During his Power Player interview in March of 2010, Tim Westergren didn't think it was worthwhile to create a chart or charts of Pandora exposure that would show the labels and the public what are the most popular artists and what records Pandora may potentially be breaking. Now, two years later, has Pandora's view of making its own charts changed?
We occasionally release data that illustrates a significant phenomenon; for example, when a large group of people create a station based on an event (such as President Obama singing "Sweet Home Chicago") and we certainly look at ways to share our data without skewing the perception of Pandora as a place where everyone can hear personalized radio that's tailored to their taste.
Some Wall Street analysts believe Pandora underperformed with its most recent earnings report. Could you discuss the perspective you expressed during your quarterly conference call?
We have tremendous momentum - the entire Q call took an hour so that's hard to condense into a short answer! I recommend people listen to the call or read an excellent article by Rolfe Winkler in the Wall Street Journal.
Lastly, what of the future? Is Pandora close to becoming a mature entertainment medium. Or do you still see considerable future growth in subscribers, advertising and accompanying media? Has potential mergers and acquisitions been on your radar?
With 49 million active users spending collectively almost a billion hours a month listening to Pandora, I'd say we are indeed a major entertainment medium. We are already effectively one of the largest radio stations listened to in every single market in the U.S., yet with over 80% of radio listening still taking place on AM/FM (much of it in the car), we have an enormous opportunity ahead of us to deliver a dramatically better radio experience to a very large percentage of the U.S. population ... and, ultimately, to the world.