Pandora Chief Strategy Officer Tim Westergren founded interactive radio service Pandora in 2000. The innovative service draws upon music recommendations based upon human experience rather than computer algorithms alone; its iPhone app has brought ne
w success in the US market, although Pandora is no longer available to UK residents.
We interviewed Westergren for a feature on the future of free licensed digital music as part of the latest Music Ally Report, which subscribers can read here – while non-subscribers cansign up for a free trial. Find the Q&A after the jump.
Q: Your battles over web radio rates have been well documented. What’s Pandora’s position now?
A: We have enormous licensing liabilities and Pandora is hoping to do a profitable Q4 but well over half of the gross revenue goes to licensing – that’s on the statutory licence. On the one hand we’re huge fans of statutory licences because they are what enable us to exist and they provide a functional way to acquire huge catalogue from not just the majors but indies – of our 80,000 artists, 70% are independent – we embrace centralised licensing but the challenge is that the rates that have been set for us are really high.
Q: How did you feel about closing Pandora to UK customers?
It drives me crazy. We’ve been trying to push in the UK to get a statutory licence, some form of centralised licence and one that’s affordable.
Q: Pandora’s been going nearly a decade, so you must be ahead of the curve in terms of figuring out how to make money from advertising on a music service. What’s the secret?
Half of our company’s staff do nothing but sell, develop and traffic advertising and you have to be creative to figure out how to monetise web radio. We have a mixture of ads: visual, video and audio ads. It’s a moving target. We believe there’s a happy ending to all of this or we’d be on a fool’s errand.
But the big challenge in the ad space is that to be attractive to advertisers you have to have scale and it’s difficult to go from zero to scale because your ad capability can’t keep up with your growth. It’s a Catch 22: Toyota isn’t interested until you have reach – Pandora has reached that scale but we burned through an awful lot of money to get here. Getting investors with the stomach to take on that risk is difficult.
We’ve been at this four years now and we’re fighting to get into the black. It’s not for the faint of heart – and that’s for the non on demand model. You need a raw number to be considered a reach play for an advertiser but…you’re running faster and faster and your bill is growing faster and faster. If you hit the wall you’re going to hit at 100 miles an hour.
Ultimately it’s about the efficiency of monetisation. We’re breaking new ground here. Ad-supported music is a brand new industry and a new economic model.
Q: What about the so-called freemium model?
A: I think it’s important to have freemium with a subscription offering as a matter of service to our users but we don’t view it as an important cornerstone of the business. Nothing should lead anyone to believe that subscription in the music space on its own is a viable model.
Q: You have millions of iPhone listeners, so is mobile the future for Pandora?
A: Mobile is a fantastic modality for this because it gets you in all those places internet radio didn’t use to be – the gym, the living room, the car. Ist’s opening up the big new swathe of listening but it doesn’t solve the ad problem. It’s not the magic bullet: indeed in many ways it poses new challenges because the screens are smaller so there are fewer opportunities for advertising.
Q: How did you decide to distribute the app for free rather than as a paid app or one that requires a subscription like Spotify?
A: The Pandora mobile app being free connects to the issue of free as a service. If you look at the iTunes App Store and compare free apps versus paid apps, you’re looking orders of magnitude lower numbers for the paid apps.
Q: And what’s your opinion of Spotify and the new generation of free services?
A: We operate in a different part of the ecosystem from Spotify because we’re not on demand. So it sets us in a very different licensing situation, both in the raw cost of licensing plus the administrative and logistical burdens of direct licensing. But I’m rooting for them – I’d love nothing more than for someone to figure out an ad supported on demand service because that’s the motherlode. You’re figuring out the biggest challenge the industry faces, competing with free. Companies are coming along with different spins, different approaches and I’m rooting for them all.