Pandora’s Remix

Once a pioneer in the music-streaming industry, the company has lagged behind hipper rivals like Spotify. But it’s determined to get its mojo back.


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A newbie to running a public company, Lynch arrived fresh from being CEO of Dish Networks’ Sling TV, a subscription service he founded in 2015 and led to an estimated 2 million subscribers and $45 million in revenue.

Pandora’s fourth CEO in just over four years, Lynch studied physics in college and began his career developing missile guidance systems at Hughes Aircraft. He did some investment banking and ran broadband and internet protocol video network based companies in Amsterdam and London, respectively.

Marci Ryvicker, a managing director at Wells Fargo Securities who covers Dish, said Lynch is widely respected in the fields where he has worked, and his record has been impressive. “He was a really, really good senior executive,” Ryvicker said. “He was the one who more or less created Sling, so he is more or less a visionary. If he can’t fix Pandora, I don’t know who can.”

Lynch told the magazine via email that he is tailor-made for the Pandora job because he has spent two decades working at the intersection of technology and media. He’s also a lead guitarist who plays in a band called The Merger, and he said Pandora “involves the single most important passion of mine outside of my family … music.”

Presumably, Lynch has the blessing of Sirius XM, which considered buying Pandora outright and instead acquired 19 percent of the company’s stock, along with the right to appoint three new board seats, including the chairperson.

Analysts see potential synergies between the companies, which could cross-promote products and help each other sell ads. Analysts also viewed Sirius’ investment as stabilizing for Pandora. Sirius is the world’s largest radio company in revenue, with 31.6 million subscribers, and it’s a division of John Malone’s Liberty Media Corp., which is known as a savvy operation.

Asked whether Pandora waited too long to go head-to-head with Spotify and get into on-demand streaming, Lynch echoed points made by Phillips about the company’s trove of listener data, its personalization technology, and its $1 billion-plus ad selling operation.

Lynch was appointed to replace Westergren, who departed after 15 months at the helm along with numerous other top managers. Previously the chief strategy officer, Westergren also was CEO for two years during the company’s pre-public phase and took over again in early 2016.

As part of the overhaul, Pandora also abandoned a costly effort to get into the ticketing business, selling its subsidiary Ticketfly at a loss of more than $130 million after less than two years of ownership. Pandora bought Ticketfly in late 2015 for what was initially reported to be $450 million, including $225 million in cash. The deal ended up costing only $335 million because Pandora’s stock dropped, and even though Ticketfly continued to be a fast-growing business, Pandora unloaded it to San Francisco-based online ticketing service Eventbrite for $200 million minus costs.

In addition, Pandora in July shuttered its only international operations, the small, 5-year-old Australia and New Zealand services.

Pandora officials say the retrenchment is a matter of focus—that the domestic market is where Pandora has the most near-term potential for gain, in particular with its ad-supported service. “International can still be interesting down the road, but we need to nail a lot of what we are doing in the U.S. market first,” said Pandora CFO Naveen Chopra during a Citibank tech conference in early September while he was acting CEO.

Chopra, who joined the company in February, said Pandora remains committed to “exciting” subscription opportunities, but he went so far as to suggest that “some might argue” investment in Pandora’s ad business had been “starved” by the focus on developing on-demand service over the last two to three years.

Starting in 2013, Pandora began serious work to repair music industry relations and lay the groundwork for an on-demand streaming service. In October 2015, the company settled a lawsuit over royalties on pre-1972 songs, agreeing to pay $90 million. In November 2015, it spent $75 million to buy assets from Rdio, a San Francisco-based, on-demand-streaming service that was respected but bankrupt.

Chopra said Pandora must take advantage of its position as the largest publisher of digital audio advertising in the country, and it’s looking for nuanced ways to capture users and revenue through an increasingly sophisticated blend of subscription and free services. Among other things, the company hopes to generate more advertising and find growth with new types of content beyond prerecorded music, he said. Those might include comedy, live events, and podcasts.

Chopra said he’d had a “revelation” since joining Pandora that caused him to rethink his belief that Pandora had “hit a wall” with its ad business. “Six months ago, we were investing to move as many people out of our core ad-supported business to subscriptions as quickly as possible,” he told investors. “Today, we look at it with more of an ecosystem approach.”

For the first half of 2017, Pandora got 72 percent of its revenue from advertising, and it expects the majority of its income will continue to come from ads. On the positive side, 30 percent of the company’s revenue came from local ad services, the most ever.

James Goss, managing director at Barrington Research Associates, said 90 percent of the $15 billion-plus radio advertising money in the country is now in local ads. Pandora is hoping to take more of that pie in the future.

Pachter said he believes Pandora can get to break-even financially with the current royalty rates if it gets 4 million premium subscribers. Pandora’s total number of subscribers was at 4.86 million in June, up from 4.39 million at the end of 2016, but most of those were signed up for the $5-a-month Pandora Plus package, which has long provided internet radio without advertisements and recently got some added functions.

Yet even Pandora’s U.S. advertising business is not necessarily safe. Some financial analysts have reported signs that Spotify is ratcheting up its U.S. advertising sales efforts. This year, Spotify began selling ads through computerized auctions and an automated self-serve platform for marketers.

By contrast, Pandora had neither capability by the end of the second quarter, though it said it hoped to start running auctions by year’s end and that self-serve capabilities would follow.

“Later this year, we’ll bring new content to all our listeners, add killer new features, and put Pandora on more connected devices,” Lynch promised gamely. “We’ll also continue to make our ad products and buying experience even better to fuel that business and help brands easily connect with their most loyal customers.”

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