Blog Post

What Pandora Should Do With Its IPO Millions

So, Tim Westergren’s Pandora (NYSE: P) has raised $235 million from its Nasdaq floatation. What should it spend the proceeds on? Here are my top three options…

1. Go On-demand

Pandora may have 29 million active users for its “new kind of radio”, but they’re really using an 11-year-old proposition – personalised radio. The rise of competitors in the adjacent space of truly on-demand – like Mog.com, Rdio, Spotify and Rhapsody, which Pandora’s IPO prospectus cite as competitive threats – makes clear that Pandora listeners, in comparison, have far less control over what they hear.

Google’s failure to launch a proper such on-demand music service and Apple’s ongoing weddedness to the a la carte model, despite launching a hard drive in the sky, means there remains an opening for Pandora to compete with the other, smaller companies in the space, to own what observers call the “celestial jukebox”. It’s still a small sector, but Pandora has a strong enough brand name to successfully add true on-demand to its personalised radio.

Label licenses for on-demand playback are costlier than for streaming radio. But Pandora’s windfall gives it an opportunity to stump up the advances labels would require for giving users total choice.

2. Go global

Pandora pulled the plug on the world in 2008, exiting international markets like the UK whilst blaming royalty societies for “rates which are far too high to allow ad supported radio to operate”, leaving it operating only in the States.

But, just as Netflix (NSDQ: NFLX) and Hulu are aiming to do, Pandora, like any successful business, must seek out global scale.

Since Pandora retrenched, some overseas royalty societies have acceded to online services’ pleas to cut online streaming rates. This, plus Pandora’s new windfall, means it is easier and more necessary than ever to push at the international door again.

But, in its recent IPO prospectus, Pandora was still complaining that rates outside the States are “prohibitively expensive”. It fears “our lack of experience in marketing, and encouraging viral marketing growth without incurring significant marketing expenses”.

3. Improve the technology

Pandora’s product looks every inch as old as its company – neither as slick as its app-based rivals like Spotify nor its more modern, web-based peers like Mog.com and Rdio. It’s badly in need of a makeover.

The company, in its IPO prospectus, acknowledged “we must constantly adapt our technology”, particularly in-car streaming – a nascent area but one that, when technology is ready, will be huge, and which Pandora has a great shot at dominating.

“It is difficult to keep pace with the continual release of new devices and technological advances in digital media delivery and predict the problems we may encounter in developing versions of our applications for these new devices and delivery channels, and it may become increasingly challenging to do so in the future,” the prospectus said. But now is the time to do exactly this.

5 Responses to “What Pandora Should Do With Its IPO Millions”

  1. Pandora has a couple of assets that they’re not using.  One is the data – what people are listening to, what songs are fastest rising in ‘thumbs up’, which songs are most banned (by popular artists) that could add a lot of intelligence in the music industry.  I also think they have an opportunity to take on the record companies by signing artists themselves and using Pandora (and other media outlets) to promote and sell them.  They could very easily use crowdsourcing to determine which artists resonate with artists.  I do agree with another commenter that discussed hardware – I’d love a piece of hardware that allowed me to take Pandora everywhere with me.  I can do this on my iPhone today, but it’s cumbersome – I think the Sirius/XM approach of selling purpose built devices was a good one.  Lastly, I think there could be a more social element to this – when I thumbs up a song – it might not be a bad idea to show me some information that says “others who like this song also listen to….” right away and give me the option of “adding those songs for future play” to increase my engagement, provide some stickiness, and frankly make it a bit more addictive, as I’d have some idea of what was coming up next.  Just a couple of thoughts.  We’ve been listening to Pandora for years, have 2 paid subscriptions, and are actively replacing our exposure to Sirius/XM with Pandora.  Also, as a side note, the TCO for Sirius/XM is $100 – $150 / years and Pandora is $36 for more functionality and more control, so it could very well be that Pandora has a little more potential upside in its pricing model than it thinks it does.  That’s my two cents.

  2. To point number 3, they need to innovate their way out of looking/feeling old school. The fastest way to do that would be for them to acquire Hitlantis and add their content to its futuristic music discovery app.  Fox News already said, “Expanded to commercial bands, it could be a better paradigm than Pandora.”Read more: http://www.foxnews.com/slideshow/scitech/2011/04/19/10-unusual-useful-new-websites/#ixzz1PTU8J3Sf

  3. Pandora is in danger of plateauing just as Facebook is already showing signs of in the US and Canada. Hopefully the investors are genuinely interested in enhancing their vaunted music discovery model by emulating up and comers Spotify and Slacker and adding elements to enhance music discovery like http://gorankem.com. It would give more depth to the newly discovered artists by showing them what songs the true fans like.   

  4. Conrad Buck

    Its logical to think that Pandora can/should expand overseas however comparing their model to NetFlix and Hulu bears no comparison. Rights for film/TV typically come bundled with global/territorial deals that are easier to negotiate with the rights holder and part/full encompassing. Music deals are completely outside of a typical bundled scenario with songwriters and labels represented by numerous collecting societies in each country, all of which are then tied to various copyright acts and remuneration agreements based on usage.

  5. Have investors seriously lost their minds again.  Should someone remind them, once again, that these internet companies will come and go.  Pandora, will succumb to the same fate as all the others that came before it.  There are already newer services, just like Pandora, that are popping up all over and that are offering better services.  What they should do with their money is invest in hardware, just like Microsoft and Apple did in the past.  Hardware is much more difficult to develop over a piece of software that the next “Geek” will develop down the road.