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Pandora CEO Claims Converts From Broadcast Radio

Acquisitions and partnerships are designed to allow focus on monetization, personalization and programmatic opportunities

Pandora’s recent spate of acquisitions and partnerships are designed to position the streaming service to become a massive, global source for music enjoyment — with plans to roll out a next-generation Internet radio platform by the end of 2016 and to expand to international markets, according to the company’s executive team.

That success has come in no small part by pulling listeners away from traditional broadcast radio, an assertion reiterated several times during an investor conference call Monday by Pandora Chairman, CEO and President Brian McAndrews.

“It is notable that the more than $1.5 billion in royalties we have paid were largely generated by converting listeners from broadcast radio to our superior listening experience that pays significantly more in royalties to the music industry,” he said.

During the conference call, which followed the company’s acquisition of key assets from Rdio, which declared bankruptcy, McAndrews said Pandora’s recent business moves will allow the company to more aggressively focus on monetization, personalization and programmatic opportunities. In addition to the $75 million acquisition of Rdio assets, the company inked a licensing deal with Sony/ATV on Nov. 4 and acquired the ticketing company Ticketfly in October.

The acquisition of Rdio was a logical next step, company executives said. Pandora cherry-picked key technology, IP and employee assets from the company in an effort to build its own next-generation service with those assets, McAndrews said. Purchasing the assets of Rdio, instead of developing such technology in-house, will allow Pandora to “accelerate our timing, bring in expertise and bring in existing technology to leapfrog the process,” McAndrews said.

The rollout of the company’s next-generation service is expected in the last quarter of 2016, he said.

The downfall of Rdio will impact broadcast station owner Cumulus Media, which purchased an equity stake in Rdio in 2013 to deliver live radio feeds from Cumulus’ 400-plus radio stations via the streaming music platform. As a result of Rdio’s bankruptcy filing, Cumulus will no longer be airing radio ads for Rdio, and stations streaming through the Rdio Live streaming service will remain available until the Rdio service winds down, according to a Cumulus statement. The radio industry no doubt will be watching to see what Cumulus, in turn, does next as it seeks to keep up with other media companies that are fighting for online footprint.

Pandora executives spoke at length about the company’s recent acquisition of Ticketfly and how that company’s expertise in live events, particularly in venues outside of major arenas, will boost their business.

“Eighty percent of artists on Pandora have never been played on terrestrial radio, but have engaged fan bases on our platform, and we can drive significant awareness and subsequent ticket purchase and event attendance for these artists,” said CFO Mike Herring. Pandora estimates that $11 billion is spent annually on concert ticket fees, sponsorship, advertising and merchandising for live events in the U.S.

Ticketfly’s live event experience and Rdio’s technology will allow Pandora to put a renewed focus on personalization and additional monetization of ad-supported Internet radio and on-demand paid subscriptions, the company said.

“The advantage that Pandora brings is that we have a fantastic interactive ad-supported business that has a significant positive contribution margin in itself,” said Herring. “If you can take a profitable ad-supported free-to-the-consumer business and then layer on to it profitable revenue streams, and add on paid listening and subscriptions, and then add on to that profitable ticketing and live event promotions and sponsorship business, [you ’re] laying together numerous businesses, all of which are contributing to the bottom line. That’s a much more highly-probable-of-success business model.”

The company said the timing of the Rdio and Ticketfly acquisitions will play in its favor, regardless of a decision expected to be handed down by the Copyright Royalty Board later this year.

“No matter what the outcome is, [these acquisitions] strengthen our ability to add additional features and functions and revenue streams to the business plan,” Herring said. “If the CRB outcome is unfavorable … having other revenue streams to focus on such as subscription businesses and live events promotion gains importance. On the other hand, if the rates are reasonable, our ad-supported business will provide continued investment dollars and we will have more options to invest those dollars.” Moving forward, Pandora’s success will come from its “position of strength… as the largest Internet radio platform in the business,” McAndrews said.