Spotify just went public, Apple Music just surpassed 40 million paid users, and Pandora is… well… what exactly is Pandora up to these days? Turns out Pandora is actually taking some steps to bring itself back from the brink of extinction. Question is, will they be enough?
The past few years haven’t been easy for Pandora, but it wasn’t always that way. In fact, when the platform launched in 2005 it offered a revolutionary service. Prior to Pandora Internet Radio, music listeners had to scour for songs across the Internet, and listening platforms like iTunes were still in its infancy. With Pandora, users could get automated music recommendations that were personalized to their tastes. Behind these recommendations was the Music Genome Project, a computer algorithm developed in-house capable of reverse-engineering music parts to find new music that is technically similar to listeners’ preferences. Listeners quickly became enamored by the opportunity for music discovery and Pandora’s stake in the industry looked promising. The company was quick to strike deals with major auto brands, like Ford, and Pandora became a common fixture on car dashboards.
In 2014, Pandora stock reached its peak at $37 per share. Today, a share of the company’s stock goes for just over $5. Pandora’s original concept of providing personalized radio just isn’t enough anymore. Today, listeners expect on-demand services, like Spotify, that allow them to find and play music whenever and wherever. Pandora may have entered the entertainment industry with a novel idea, but it failed to see the value behind things like on-demand streaming and ad-free subscriptions. By the time Pandora Premium was unveiled in 2016, it was already too late. As tech analyst Gene Munster states, “when Pandora was just ramping, it was thought that radio was the future of how most wanted to interact with music. And what Spotify did was add controls and sharing playlists, and [Pandora] just missed that.” Since then, only 7% of Pandora’s 81 million listeners have chosen to convert to paying for an ad-free subscription. To put that into perspective, of Spotify’s 159 million users nearly 71 million pay for the Premium service.
Pandora has also had its fair share of management shakeups and questionable acquisition decisions. In the summer of 2016, Pandora was in talks with Liberty Media, a mass media conglomerate. The deal supposedly had Liberty Media offering $15 per share, which would have valued Pandora at $3.4 billion. Talks ended, however, when Pandora’s board turned down the offer. Reports that followed indicated that the board felt that the Liberty Media offer undervalued Pandora stock. In June of 2017, satellite radio company SiriusXM made a $480 million investment in Pandora, which gave it a 16% stake in the company and 2 board seats. Later that same month, co-founder Tim Westergren announced that he would be stepping down from his positions as both Pandora CEO and board member. The company, which was clearly already vulnerable, was now left without a frontman. To round out a crazy summer, Pandora announced that it would be selling Ticketfly, a ticketing platform it acquired back in 2015 for $450 million, to Eventbrite for only $200 million. Now, I may not be a finance major, but that does not seem like a great deal to me.
So why bring up Pandora now? Well, just last month the company announced that they would be purchasing an ad tech startup called AdsWizz for $145 million. AdsWizz is the company behind the audio ads heard on platforms including Pandora, Spotify, and Soundcloud. According to Scott Walker, SVP of Pandora’s ad strategy, the acquisition of AdsWizz points to a couple of goals. Mainly, Pandora will be able to expand its business interests and gain a new source of revenue. What’s interesting is that Pandora plans to operate AdsWizz as an independent subsidiary, which means that the advertising company will continue to serve Pandora’s competitors. Analysts question the deal for several reasons. Some wonder whether other audio publishers will be willing to work with a company that is owned by one of their rivals. Others are not confident that Pandora will gain more from buying AdsWizz than they would by just paying for its services.
The overall tone following the acquisition is can be described as critical. Pandora desperately needs to find more ways to make money and becoming a power player in the ad space overnight at this point seems unlikely. But I’m curious to hear what you guys think. Is Pandora as we know it doomed? Or do you see this recent acquisition as the start of a new era for the company?