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.
Photo by D. Ross Cameron
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Chris Phillips sat in a conference room high above downtown Oakland and explained why he thinks Pandora Media’s new $10-a-month music service—Pandora Premium—can compete with juggernauts like Spotify and Apple. Looming over Phillips on one wall was a giant, black-and-white photo of The Ramones, the great New York City punk band of the 1970s. Through a glass wall, employees worked intently at computers or in huddles, collectively pulling the technological levers that have turned Pandora into a $1.4 billion-a-year business.
The bottom line, argued Pandora’s chief product officer, is that the wealth of expertise the Oakland company has gained since becoming the first online radio provider in 2005 has enabled it to assemble a better “on-demand” product than its competitors. “When you think about what are we doing different—why does it compete—it’s really about ease of use,” said the lanky, enthusiastic, and personable Phillips, who joined Pandora in late 2014 after leading product management and user experience for Amazon Digital Music.
In just seconds, Pandora can build a music playlist full of songs based on individual preferences, including many songs a person might never discover otherwise, he said. Thanks to new licensing deals with the music industry, Pandora’s song catalogue is vastly larger than it was in 2016. “We use all that music science that we’ve collected and we’ve been building for years, and that science just makes the music programming super, super high-quality, and that’s different,” Phillips bragged.
For years, Pandora had grappled with a vexing problem: Customers would discover music through its free radio service and then go to another paid service, like Spotify or Apple, where they could listen on-demand to a particular song or album anytime they wanted. Pandora was stymied by the fact that, for years, it didn’t possess the licensing deals it needed to offer a competing on-demand service, so the company stuck with its big and growing internet radio advertising business instead.
But subscription fees can add up quickly to big money, and Spotify and Apple and other subscription services have grown rapidly and now present a real threat to Pandora’s future.
Pandora, however, is hardly a pushover. It’s still the nation’s largest music-streaming service, both in terms of overall audience and engagement, and its second quarter revenue in 2017 grew 10 percent over last year.
Yet the publicly traded company has been losing users and buckets of cash in the past couple of years, trying to adapt to the changing market. It also has struggled with management turnover and a huge decline in stock value.
The questions facing Pandora today have been lingering for some time: Has it missed the “on-demand” train, and can it get a foothold in the fast-growing and ever-more-competitive on-demand-streaming business? Also, will Pandora ever become profitable and grow and defend its currently dominant U.S. advertising business? Or will it become the MySpace of streaming music?
Whatever the case, the city of Oakland will be watching closely as one of its most prominent corporate citizens battles for its future. Not only does Pandora employ roughly 1,000 people downtown, it gives its workers 40 hours of paid time off annually to volunteer in the community; partners with music, youth, and minority empowerment programs; donates free advertising to local nonprofits; and has committed to trying to hire local people representing Oakland’s diversity.
The person to answer Pandora’s existential questions going forward will be new CEO Roger Lynch, who was appointed in August after his predecessor, company founder Tim Westergren, was ousted two months earlier.
In early September, as Lynch prepared to take over at Pandora’s Oakland headquarters, home to about half the company’s employees, the tea leaves were distinctly muddy. Just a few months after introducing Pandora Premium with fanfare and at enormous cost, Pandora officials were saying they would no longer aggressively push users to the premium service. Instead, they were highlighting the potential of their “core” advertising business, while promising to grow subscriptions as well.
Perhaps that shift reflected the influence of Sirius XM, which in June committed to investing $480 million in Pandora by the end of 2017. At the time of the deal, Sirius CEO Jim Meyer specifically highlighted the fact that Pandora is the market leader in digital radio advertising, an arena in which Sirius does not play.
Or maybe it reflected the less-than-overwhelming adoption of Pandora Premium, which, by the end of June, had attracted only 390,000 subscribers.
Pandora actually saw its total number of users drop to 76 million in June, down from 78.1 million a year earlier and a peak of 81.5 million in 2014. And that erosion came despite the fact that Pandora spent hundreds of millions of dollars on sales and marketing in recent years.
While observers generally agree that Pandora has put forth a competitive on-demand offering with its premium product—which offers unfettered access to a playlist of 40 million songs— many have questioned whether that will be enough to keep people from choosing Spotify and Apple, given that the streaming services are similar in key respects, and rivals have their own claims about superior functionality.
And the momentum that Pandora’s competitors enjoy is striking. Spotify added 10 million paying subscribers between March and July, bringing its subscriber total to 60 million globally. Apple said in June that its paid music service, launched in mid-2015, already had 27 million users.
Pandora officials are also now quick to acknowledge that it’s still too early to know whether Pandora Premium will be a hit. Phillips, in fact, argued that “the bulk of the market has still not made a decision about an on-demand service and is still trying to figure it out.”
Pandora, in other words, has yet to chart a clear path forward.