As an avid music lover, the birth of Pandora was something that I took in with great appreciation. I was once a subscriber to Sirius radio because I liked being able to choose what type of music I wanted to listen to when I was in the car. Whether it was jazz, alternative, or simply just 90's music; satellite radio offered something that that air radio could not. I was willing to pay for the subscription fee because that offered the opportunity to listen to commercial-free radio. But when Pandora began, paired up with the flourishing sales of smartphones, it offered the chance to listen to not only your favorite band, but bands that are just like your favorite band on any PDA without a problem. This introduced me to some music that I would have never heard of if I was listening to radio other than Pandora. After all, 52% of music that is playing through Pandora is music of unsigned artists. There's one thing that really makes a music lover happy besides listening to good music, and that's listening to good music that you have never heard before.
With that said, Pandora is sitting in a position where they need to make some decisions relative to making profits because there is seemingly a dramatic increase in the amount of cash that needs to be dished out in royalty fees. The company is already operating at a point where there has been no dramatic change in net income. In other words, the more users that Pandora acquires, the more revenues are generated, but this is in direct proportion to the amount of costs that are incurred. It seems that Pandora needs to make a change to their business plan to counteract this synchronicity.
So how can Pandora increase its revenues without increasing its costs? Or, similarly, how can Pandora low its costs without jeopardizing a decrease in revenue?
My first thought was to improve the interface of Pandora. Being that 93% of their revenue is generated from advertisements, it could be a good idea to advertise some more. Helping people find music they love is what Pandora specializes in, so why not continue that model?! So what do music lovers like to do besides listen to music? How about attend live music so they can see their favorite artists perform? I know I would like to have an option to click away on a tab that lets me view when the artist of a certain song will be touring in my area so I can see them live. I am not sure of the functionality of this option, but I can see having a link that automatically searches the band or artist on livenation.com or even ticketmaster.com in your given location. This type of partnership would not change the functionality of Pandora, but it would potentially drive more customers to buy tickets to concerts of bands they love. This might increase the revenue side.
Then my second thought was one that aligned with what I stated in the first paragraph and that's the fact that music lovers like to hear good music that they never heard before. Let's just say that I wanted to plug in Bob Marley into my Pandora and listen to reggae. Sure, I'll get to listen to some Bob, maybe it will lead me to some Toots & the Maytals, or some UB40. These are all artists that we expect to get led to. What if Pandora threw in a wildcard every here and there? Some band or artist that is up-and-coming that is not well known at all. For someone like me; I would stop, look at my Pandora, and inquire about this song that I never heard of. In essence, this creates more interaction with the Pandora platform, potentially creating more revenues. But revenues would not be the main thing here, it's the reduction in the royalty fees that need to be paid out to the artists. An up-and-coming band does not need to be paid as much, driving the costs down. This does not need to happen frequently, maybe one new song for every ten played. Plus, if a user does not like the song, they have the option to click the next button. The big picture here is that if 10% of the royalty fees are reduced, we might be able to see a sustainable increase in Net Income without jeopardizing the functionality of the Pandora platform. Maybe it will create more value to music lovers!
The other point that I want to make here is that there has to be some value in the massive amount of data that Pandora has acquired from their users. Being a first mover in this industry has enabled them to collect what demographic likes what type of music. This has to be able to be used in a way that can create more value to its customers. I look forward to hearing something about this in the presentation today.
Thanks.
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