Internet radio player Pandora has had some ups and downs since going public a year ago. For example, in the past month, streaming music service Spotify began directly competing against Pandora with its own internet radio offering. A month before, Pandora unveiled an advertiser-friendly update to its mobile apps – to withering reviews from users (see this post — subscription required — from BTIG analyst Rich Greenfield for details.)
And yet, Pandora is still adding users: This week the company said it grew its share of U.S. radio listeners to 6.1 percent up from June’s share of 5.98 percent and a 3.51 percent gain over the same period last year. Read the release. Even as its audience and ad revenues surge, the company is still struggling over royalty payments for the music. The only answer then, is more ad revenue to cover those costs. We turned to Chief Revenue Officer John Trimble for some answers about where the growth will come from.
AdExchanger: This summer, Pandora expanded its local ad sales strategy with a reseller program that involved partnering with regional media companies. How big is local advertising to Pandora’s overall ad strategy and revenues?
John Trimble: We look at local as a key component to our overall strategy. If you look at where we have taken the business over the last several years, we started in the display side. As we evolved to a radio play, in looking at the broadcast landscape, we started to make a pivot into this conversion between both digital and broadcast radio. Based on our scale, local became a very practical strategic move.
If you start to look at where we fit now against the radio market place, we have become one of the top, if not the top, radio station in 20 of the top markets. Right now, we represent almost a 70 percent share of the internet radio market. From a local perspective it really does fit between both digital and radio. We started the year going into five markets. We are currently in 10 today. We are going to continue to push that based on the success we have seen.
I think obviously we see it being a big piece to the business. Again, it’s a strategic piece to be able to bring a multiform strategy to brands. The local opportunity both digitally and in the audio messaging really plays well with what has traditionally been the local broadcast marketplace. It works well because it is targeted, plus we guarantee the impressions and to hit those numbers in a specific demo, which is very appealing to local marketers. In other words, our local marketplace ads have the precise power of broadcast radio, which can leverage the value proposition of what we have in the display space.
Is Pandora actively selling local ads or is it a self-serve option for local marketers? Are you be putting people on the ground in those markets? Or do plan a combination of selling options?
Our early move to market is putting feet on the street. In the near future we will continue to put people in specific markets. In addition, we’re always exploring different ways to bring advertising opportunities to the marketplace and self-serve certainly is something that we are always looking at. We have not made any moves there yet, because I think we have an awful lot of work to do with people in market that is really consuming our focus at this point.
In general, where is Pandora looking for growth in its ad sales?
Brands understand our value with their consumers. In other words, scale means something in this business and when you have 150 million registered users, you have 55 million active users, and you are the dominant player in mobile, that certainly gets brands’ attention. From there it starts to go into more of the psychographic and strategic offerings when you think about the passion connection that consumers have with music, the time spent on Pandora is unique compared to an awful lot of publishers are ability to target audiences. Beyond that, as I’ve said, the multi-platform ability to go through digital, mobile, video, audio, and the smartphone market place completely, has propelled our push into the market over the last year and will continue to be where we stake our value proposition in the ad buying community.
For the most part, I think of Pandora as a mobile play. But there’s also deals with automotive companies, and there’s been more emphasis on the website’s display ads lately. Is there any shift in the way users access Pandora?
The desktop business has evolved as the multi-platform positioning has changed and it’s still the key revenue driver. While the desktop is still a key driver of what we bring into the digital marketplace, the ability to continue that now with the continued growth of smartphones and tablets brings will be the things that fuel the growth.
The other place that we have been pretty fortunate is our ability to run video and there has been a real value opportunity for us to talk to the agencies and brands about that. So I think the desktop will also continue to grow, but we really look at the business from a strategic standpoint, the majority of our audience is now on mobile products.
Let’s talk about the changing landscape. Spotify is now offering its own “internet radio” station, in addition to its main position as a repository for listening to users’ and their friends’ playlists. How does that affect Pandora’s position to advertisers and consumers?
When we look at the various options for digital music today from my perspective it really is a validation of what Pandora started. There is that paradigm shift in how people consume music, and it is on the go digitally. Where I think that we stake our claim is in discovery, especially when it comes to the mass audience. Consumers really like to be in an environment where they like a genre or they like a song, and they let Pandora do the discovery for them. When you think about some of the key elements of what has driven our growth, that is a key component. It is simple, it’s elegant, and it really connects people to music they like without having to really think about creating playlists and curating their own music. That is a challenge for a big majority of folks out there to be a music curator, and we do it for them.
Getting back to ad sales, Pandora positions itself as a premium national brand ad player. I was wondering if the company has been looking at the exchange space, is that a part of the advertising either in terms of private exchange?
I would say the exchange opportunity is always being strategically analyzed. We have to ask ourselves, “How do you create an exchange from a premium position?” To be able to leverage targeting, our reach, and potentially different ad formats that we have the ability to deliver across those multiple platforms is why we’re interesting in considering the concept of building a private exchange. We like the idea of it — with the right demand partners, of course, but we don’t see a need to rush into that space yet either. We’re especially interested in how a private exchange translates into a mobile environment.
So with exchanges on the backburner, what’s coming up? Where’s the focus the next few months for Pandora?
We are real excited about our recent announcement that we are moving into Australia and New Zealand. Pandora is currently in beta there, and we are starting to personalize our service for both New Zeeland and Australia listeners.
Aside from that, there’s been a an awful lot of talk about [Pandora CEO] Tim Westergren being in Washington to talk about what the royalty situation will be in the next few years. I think that becomes a big strategic opportunity in conversation for us. From the advertising perspective, what you will see from us is we will launch some mobile innovations going into Q4 that again will take advantage of our first market lead and our scale, which we hope the brand marketers based on early indications will be very receptive to.
