Pandora Enters New Phase of Ad-Based Business With Integrated ‘Promoted Stations’

The custom stations will be added to listeners’ station lists and marks the first time Pandora has integrated an advertising product within a listener’s station list, it said. Roughly 10 percent of Pandora’s 76 million monthly users are part of the beta launch. Pandora, which has made no secret of its desire to be primarily ad-supported, is “relentlessly focused on advertising solutions that enhance both the listener and advertiser experiences,” said Lizzie Widhelm, vice president-digital advertising. The program will “make it easier for listeners to explore the unique content” it creates with sponsors and will give them the chance to extend the reach of their content and “the time spent with their brand,” Widhelm said. Pandora will add more brands to the beta rollout to test positioning of promoted stations, and listener exposure to promoted stations “will grow throughout the year” as the company “fine-tunes the user experience,” it said. Promoted stations will feature the “personalized listening and advertising experience” that users have on Pandora stations, it said.

Pandora sees its biggest growth opportunity in the automotive and smartphone segments. The company’s priority is to grow the listening hours of its active users and is targeting the 260 million smartphones that eMarketer has forecast to be in use by 2016. Pandora historically has been connected on one out of every two smartphones in the U.S., so it has its sights on a listener base “north of 100 million.” Cars will help drive that growth, he said. Smartphones in cars account for a high rate of listening hours in vehicles, but Pandora has no way to know whether a listener on a wireless data plan is using Pandora on a street or in a vehicle. As more connected cars come out with their own data plans, Pandora will see more vehicle-specific activations, he said.

Paschel said as the Internet of Things “becomes more pervasive, so does Pandora’s ability to be utilized within that.” Even some Jacuzzis now come with Pandora, he said, and “the attach rate is high.”

Licensing costs remain a sticking point in the music industry, and Pandora is about to enter a rate negotiation phase with the Copyright Royalty Board, which sets compulsory rates for webcasters, Paschel said. “We believe there will be an economically rational outcome,” he said. Despite some “public jockeying and bickering” from the music labels’ PR side, Paschel cited a thought process “that hopefully has evolved” where labels understand that Pandora wants the industry to be “very successful.” More conversations are taking place that are “at least conditioning people that we want to have productive relationships with everybody whether that means the compulsory side or that means direct deals,” he said.

Pandora is “willing to consider everything … anything that can make the ecosystem successful,” Paschel said. The compulsory structure is beneficial in cases where Pandora currently holds rights that on-demand competitors don’t have, he said. “We could play the Rolling Stones before Apple ever had the Rolling Stones under the compulsory structure, so there’s some benefit to retaining that,” he said. In 2013, Pandora paid $344 million in royalties, “more than half the revenue that SoundExchange is now getting” before disbursing that money to copyright holders, he said. “We're one company with 9.3 percent market share. We're writing meaningful checks and we want to have meaningful discussions.”