Pandora execs address analyst questions


After Pandora executives made a set of presentations to analysts on its Financial Analyst Day 7/12, they turned it over to the analysts, which came up with an hour or so of questions. Here, we’ve selected a few of them, along with some additional info detailed during the call:

A good question from one of the analysts was, “Why are Pandora’s CPMs lower (roughly half) that of regular broadcast radio?”

The response from Chief Revenue Officer John Trimble: “It’s important to distinguish between CPM of a specific ad and CPM per hour. Those are actually two different things, and we’re starting to use the term RPM (revenue per thousand hours), to talk about total revenue over the course of an hour. That’s the $36 vs. the $72 CPM example on the slide. That doesn’t speak to what the CPM is of specific ad units. The $36 RPM represents both the visual (static and video) advertising as well as the audio advertising.”

He added in terms of audio-only advertising, they actually get “a modest premium” over the CPMs that broadcast radio gets. And we’ll get that for, typically, a :15 second spot – a premium over what advertisers would pay for a :30 or :60 second spot on broadcast radio.”

According to company figures, more than 100 million people have registered to listen to Pandora across computers, WiFi radios, smartphones, iPTVs, alarm clocks, tablets and car dashboards. 36 million listeners access Pandora monthly.

Another question was about Pandora in cars—what are the metrics of Pandora vs. SiriusXM; what percentage of new cars have Pandora bundled into the dashboard or able to be controlled on the dash; and what percentage of these new car owners are converting into regular Pandora listeners?

One exec replied: “Although we’ve got the six major manufacturers that have announced plans, the number of vehicles that have actually rolled out and the amount of time they’ve been on the road actually really makes it too early to make any of those kinds of numbers. If you think of the overall growth prospects for Pandora, the short-term catalyst is not going to be cars or consumer electronics. Right now, Pandora is downloaded on approximately one out of two smartphones in the U.S. Smartphones are now selling at a rate of 15 million per quarter. That will be the major catalyst of our growth over the next few years. I think about auto and CE as well as a snowball that will start out rather slowly, and the replacement cycle in cars is seven years. So it will be several years before the model rollouts will take place and then the replacement cycle will have its impact.”

Pandora execs also mentioned they have formed a new relationship with Scion and has expanded its relationship with Ford.  Pandora will be available in 10 Ford and two Lincoln vehicles. Pandora also has in-vehicle integrations with BMW, Mini and Mercedes-Benz. Additional automakers with plans to integrate Pandora into their vehicles include Chevrolet, Buick, Hyundai Chevrolet, GMC, Hyundai and Toyota.

Major automotive aftermarket suppliers with announced Pandora deals include Alpine, JVC, Pioneer and Kenwood.

Said Jessica Steel, Executive Vice President of Business and Corporate Development Vehicles: “The Pandora Everywhere strategy and the progress we’ve made is a proud achievement, given the complexity of the different industries we work with and the absence of technology standards for what we do. In many cases, the great experiences we’ve enabled are built on proprietary solutions our technical teams have developed.”

Over the past five years, they’ve amassed hundreds of devices integrating Pandora on a wide array of platforms. Part of that is due to chip manufacturers integrating Pandora capabilities into the chips they sell to CE manufacturers.

Another question: have you done testing on user behavior and what happens to user behavior as you ratchet that number upward to 13 minutes (the number they are looking to eventually max out at per hour)?

Said Trimble: “We frequently get the question of can you test what the optimum audio level is and we actually don’t believe that’s possible. If we tested X minutes of audio advertising and saw how consumers responded, the tests would tell you more of how consumers react to a steep step function in advertising, more than they would tell you what that absolute ad level would be.”

Another question: “You’ve got a lot of great new functionality that’s rolling out on the web. What about extending some of that to the Android and iPhone platforms?”

One exec replied: “In the process of developing new Pandora, we’ve learned a lot about simplifying the experience, helping people get personalized station creation, the way the people interact socially around music – we spend a lot of time with listeners testing these prototype designs – on top of that, we think the mobile environment is a particularly engaging kind of social platform, so without saying anything specific we will look to bring some of that experience into some of the other Pandora platforms as well.”

RBR-TVBR observation: The real threat to traditional radio is Pandora’s growing local sales teams. This will make the service sound more localized as well because many of the local ads will invite people to local events and simply be local announcements. They will offer up hyper-targeting capabilities to local advertisers, competitive rates and accountability levels including how many were listening and when on an hourly basis.

Related report: Pandora holds Financial Analyst Day