Opening up Pandora Radio : part 1

Imagine a future where your radio network:

• Is mostly listened to on mobile devices – and grows rapidly through fans’ word-of-mouth
• Has been activated on one in three smartphones across the country in the last 30 days
• Has doubled its audience in under 2 years to reach almost 2/3rds of the nation’s population
• And at the heart of your network’s success beats one of the most advanced music research systems on the planet – which becomes more advanced the more people use it

The surprising news for some is that that network is already here, and that is what it can claim to have already achieved in the USA. But the good news is that it’s not a substitute for existing radio networks (unless all yours does is play music); that it supports the music industry in promoting the discovery of new music; and that, with some visionary thinking, it may be an ally in growing radio’s relevance into the future.

Here, Jane Huxley, the Managing Director of Pandora Media, Australia & New Zealand, takes Scott Muller for an in-depth tour of Pandora Radio…

In the USA, Pandora Radio can now claim the following achievements*:

• It now has 200 million subscribers – almost 2/3rds of America’s population, and double its penetration of 2 years ago
• 75% of Pandora Radio’s listening is through mobile devices – and in the last thirty days one in three American smartphones activated Pandora Radio
• In 2 years Pandora Radio’s share of average quarter hours of radio listening has grown to 7-8%* – enough to make it the market leader (or close to it) in many of the American markets it has been measured in
• It has achieved all of its growth almost entirely through fans’ word-of-mouth marketing – with comparatively little additional marketing spend
• At its heart beats one of the world’s most advanced music research systems – which becomes even more advanced the more people use it

Scott: Jane, those are impressive achievements in the USA where Pandora Radio has been established for a few years now – what is the growth like in Australia and New Zealand?

Jane: We’re not talking about any local numbers at this stage – I’d like to think that will happen this year. When we do compare to the US we are growing faster than they did – but we should be, because we’re on Version 4 of the product. The take up here has been very strong.

Scott: What kind of marketing is involved to increase take up?

Jane: We’ve never spent any money on advertising. Basically the way it works is that people discover and find the app in the app store – either for Google or for Android, and we also have a PC based product so they can go to Pandora.com and you’re in.

You register to use Pandora, and your account can contain up to 100 personalised radio stations. That account will also follow you on any device. So if you’re on a phone on a bus, and then you go into the office, or listen in the car it’s the same account – your personalised stations are setup and ready to go.

The product itself is really part of the secret sauce of Pandora, particularly on a mobile phone. More than 75% of our users are on a mobile phone – this is well and truly a mobile company. My guess is that will be about 90% in a couple of years.

Scott: So, on a mobile phone, how does it work from the user’s point-of-view?

Jane: On a phone you only have a small amount of real estate that you can work with, so your product has got to be incredibly simple and easy to use.

When you download Pandora on your phone, there are only 3 things to do; firstly, type in the name of a song, artist or a genre that you love. We then start playing music that’s based on that. You then (click) “thumb up” or “thumb down” to further refine your station.

Scott: Addressing the elephant in the room, there are some differing viewpoints on whether Pandora Radio is actually radio – or whether it’s more similar to an online service like Spotify. From a listener’s point-of-view, Pandora Radio is used in much the same way existing music radio is used. Can you talk us through that, and how Pandora Radio fits into the radio landscape from the listener’s perspective?

Jane: Basically, there are two ways that people listen to music – an active mode and a passive mode. People listen to music passively about 80% of the time and actively about 20% of the time. In the passive space it’s really about music just playing in the background and it might be while you’re driving, working, bathing the kids, cooking dinner, sitting in a coffee shop or getting a haircut. That passive experience of listening to music is really where radio has served the market incredibly well for many years. (Pandora Radio) plays in that passive space.

In the active space, and particularly in digital terms, we refer to active listening as actually doing your own programming – telling a particular service that you want to listen to this artist, this CD, follow these people, use these apps. (With the services that play in that active space) you are actually programming your own music listening experience. There are a lot of examples of companies in this on-demand space – Spotify, iTunes, Deezer, Rdio, Mog just to name a few.

They are very complimentary services, but most of the time I just want music to play. And every now and then, particularly on Pandora, I’ll hear a track from the 80s and I’ll think ‘oh my god, Cyndi Lauper!’ and I’ll just want to listen to that. So I will actually go to an on-demand service and listen to the album on those. They are very complimentary experiences.

Scott: There’s a strong parallel with how traditional music radio is used. You’re driving along listening to a station and you hear something you like, and later on you might dig out the album or search iTunes or whatever, to hear more.

Jane: So on Pandora if you hear a track you love you then use the device to click to buy that track, click to bookmark, thumb it up – there’s an interactivity that can happen at that time.

Scott: It’s been reported that in the US, two years ago 4% of average quarter hours of radio listening were through Pandora Radio – and apparently that’s now grown to 7-8%*. That’s quite a phenomenal growth rate.

Jane: I think we’re now (measured) in 25 markets in the US. But because it's web based it doesn’t matter if we have a presence in a market there or not. Pandora can grow anywhere someone can get a signal. If you have a good product and you are delivering an authentic service to people, they individually will vote with where they want to spend their time. I’ve had some great emails of support from areas in regional Victoria, or in the mines in WA who are all enjoying Pandora.

I spent a lot of time at Fairfax in a business that was grappling with traditional and new businesses and shifting audiences. There is nothing that you can do to stop an audience from moving to products and services that they find are more convenient. This has happened time and time again and I don’t know if there’s a single industry that hasn’t been disrupted by what’s going on with the internet – and particularly now with mobile, which is moving us faster than ever before. That’s the wave that we want to ride, with a great product that delivers an un-paralleled listening experience – and let the listeners choose.

In internet models there is rarely one for one substitution. Newspapers are still here despite having a presence on the internet. What we tend to find is that the overall market grows. There will be people listening to Pandora that are not necessarily listening to commercial radio today. Probably not a lot of them because radio is massive. It’s been in everybody’s ears forever. Pandora will compete and grow the overall market, particularly around hours (time spent listening).

Scott: People as a general rule don’t like change. Every generation views new media within the constructs of the media that they grew up with. So if you grew up with FM radio stations being significant players in the media landscape, it can be challenging to imagine the ways in which those stations’ roles will change in the future.

Jane: I agree that we are now in an era where you’ve just got to embrace change. This is not an unfamiliar environment for me to operate in, coming out of Fairfax and running the digital business in there for some time. Ultimately the audiences will choose where they want to spend their time.

Scott: In the U.S, 88% of Pandora’s revenue is from advertising (i.e., not subscription) – is that correct?

Jane: Yes, we are an ad funded digital business. Although I should say that’s not the case in Australia and New Zealand just yet, we have not yet switched on advertising. The job that I have to do here first is grow the audience and then we implement the commercial model once we have a large enough audience to sell against. So we’re still in that growth phase and then obviously we plan to implement the commercial model as soon as we can.

To pre-empt another question: I’m hiring sales folks now so we’re getting ready to turn on the commercial model.

Scott: So, are you now focusing more on hiring for sales, or marketing, or distribution, or … ?

Jane: I’ve already made my first couple of hires. From the outset there are two ways to grow Pandora. On the consumer side there is social, marketing and events. The other side is growing through partnerships and distribution such as cars, audio systems and smart TV’s. My first two hires have been on the consumer / marketing space and in the business development space.

On the consumer side and referring back to the question of growth from earlier: people download Pandora, it’s a very simple product to use, it does exactly what it says it will do – it plays you music that you love. What we’ve found is that when people start using Pandora and it delivers on what it says it’s going to do, they then recruit other listeners. On average every person that downloads Pandora will recruit 8 other people. So this is how we’re growing even though it’s still just me working out of my home.

Scott: That’s a great position to be in, to have a product that’s essentially marketing itself through word of mouth.

Jane: That’s exactly right. So we’re growing anywhere between 12% and 20% a week, based off the back of what we call the advocacy model. So in the consumer space we work with people who are already using Pandora and of course we’ll do a lot of work around social media – Facebook, Twitter. We get new artists added each week, new Australian (artists). I was looking at my curation list earlier and 4 new Australian artists were added to the Genome today, we are always on the lookout for new music and our listeners like to hear about that.

Scott: In a moment we’ll come back to that point for more details on the Music Genome Project, and how Pandora Radio supports new music – but before we dig deeper into those areas, tell us about the other area of focus for Pandora Radio’s growth: distribution.

Jane: Yes, then there’s the devices and distribution part. On The Voice and 60 Minutes you may have seen Pandora in a commercial for Holden Barina. Holden have been a terrific partner for us. We’re in twenty different models of car in the US and over 85 different types of vehicles and we’ll leverage those partnerships as those cars and companies ship here.

The car space is a really important one for us. The whole distribution piece is important and we’re working with 7 after market manufacturers of car stereos. They’re all enabling Pandora in Australia and New Zealand as we speak. Partners like Pioneer, Clarion, etc.

In part 2, here, Jane tells us about:

• How Pandora Radio supports the music industry through promoting the discovery of new music
• How the heart beat of Pandora Radio, the Music Genome Project, works
• And Pandora Radio’s low commercial inventory model

* Note: the radio share metric is calculated by Pandora using data from Arbitron, the US Census, Triton measurement of Pandora, and Pandora’s internal data