Despite the wide rollout of its Premium subscription product in April, Pandora is still betting on ads for revenue.
Now that Premium has hit the market, Pandora can refocus its efforts and resources on launching new ad products, including programmatic audio, in the back half of the year, said CEO and founder Tim Westergren on the company’s Q1 earnings call on Monday.
Programmatic audio is a “very important technology that frankly has been missing from the team for quite some time,” Westergren told investors.
“We’re at the end of a two-year process of building a large new product,” he added. “That has taken a lot of resources and focus from the company.”
Based on Q1 results, doubling down on ad monetization is much needed. Ad revenue increased just 1% year-over-year, from $220 million to $223 million. In Q1 2015, Pandora saw ad revenue grow 23% year-over-year. Overall, revenue at Pandora grew 6% year-over-year to $316 million.
Ad revenue slowed in part because Pandora cut ad hours on remnant inventory 10% to provide a better listening experience, said Chief Financial Officer Naveen Chopra. He also attributed slow growth to seasonality in the ad market and strong upfront commitments from radio broadcasters that were secured later than expected.
“We proactively controlled Q1 listening hours, which reduced remnant inventory and related ad revenue,” he told investors.
Pandora saw monthly active listeners drop from 79 million to 77 million year-over-year after over-using on-platform ad inventory to upsell ad supported listeners to its paid Premium product, Chopra said.
“We placed greater emphasis on upselling consumers to the subscription tier rather than acquiring new users,” Westergren added.
To mitigate that negative impact, Pandora will introduce frequency capping mechanisms and smart conversion tools to avoid over marketing users. But upsells will remain Pandora’s most effective and efficient way to acquire subscribers, Chopra said.
“We had some issues with how aggressively some of the on-platform tools were being used,” he said. “We just need to be smarter about it and use different tools, whether that’s direct ad inventory or smart conversion tools, and turn the knobs and dials on each of those mechanisms so we’re not doing it too much at any given time.”
Pandora saw success in programmatic video and display with the introduction of new features such as song skips and replays in exchange for watching a video ad, which led video inventory per hour to increase 27%. One in five users will watch a video ad to skip or replay a song given the opportunity, Westergren said.
On the call, Pandora announced a $150 million investment from private equity firm KKR, which it will funnel in part to developing new ad tech and marketing products, Chopra said.
“Building the largest audio advertising platform on the web is our priority,” Westergren said.