How much pain can Pandora Media Inc (N:P) cause the competition? Put differently, how much disruption can the competition cause Pandora?
Music streaming services are popping up everywhere, some copycats and some showing up with incredibly compellingly new twists and flavors. As is always the case, incumbents are on target as new players enter their industry. Pandora is not only an incumbent in the online music streaming business, but one of the most popular providers boasting over 78 million monthly active users. As of early this year, the average American adult spent 25 minutes daily listening to Pandora online radio.
Pandora listening stats
As of mid-June 2015, Pandora accounted for 9.47% of radio listening time in the U.S., which was a slight decline from 10% mid-March 2015. However, dating back to March 2014, Pandora’s portion of the U.S. radio listening time has held steady at around 9%.
Can the competition choke life out of Pandora?
What has become clearer in the recent times is that Pandora is aware of its environment – it is competitive and competition is not going to cool any time soon. With the knowledge of the situation, you can see Pandora trying to drive competitors to defensive playing as it advances its offensive maneuvers.
Acquisitions and other deals
Pandora Media Inc (NYSE:P)’s recent transactions are testimony to its offensive drive to keep the competition behind. The company recently harvested assets and talents from the troubled rival Rdio. Pandora has also added to its expanding portfolio assets such as Ticketfly, a ticketing service and Next Big Sound, music analytics service.
Pandora has also signed content deals with multiple partners to eliminate potential hurdles to its core Internet radio business. Sony/ATV and SONGS Music Publishing, famed as the largest independent music co-publisher are some of the content partners Pandora as roped in to network.
Content-themed deal-making at Pandora is likely to continue, especially after the pending royalty rates review. For Pandora, content is center and front to its business.
With a reliable strategy seemingly in place, perhaps what will determine the success of failure of Pandora in its endeavors is execution.
Royalty rates review
Rates that music and video brokers such as Pandora Media Inc (NYSE:P) pay to copyright owners are up for review and a decision is pending. It is widely expected that the Copyright Royalty Board (CRB) judges will hand down their ruling on the royalty matter on December 15.
While the pending CRB decision has created uncertainty among investors about the future of Pandora and its streaming service peers, it doesn’t look like a significantly unfavorable ruling is in the offing. In the worst case scenario, CRB is expected to limit its upward royalty rates review to 10%, which could still disrupt, but largely favorable for service providers such as Pandora than when rates were to go up higher.
Nevertheless, the pending CRB royalty rates decision remains an important issue to keep a close eye on.
Pandora has a goal
As already highlighted, Pandora Media Inc (NYSE:P) has mapped out its path and what remains is execution, which is not lacking. One of the company’s strategies is to set up few but realistic goals at a time. In March last year, the company set four goals under which it sought to diversify its revenue sources by 2020 and also become a leading global music marketplace. Of the four goals, three have been successfully delivered on and one is pending, though not far off the target duration. The one goal that Pandora has yet to push to deliver on touches onboosting user engagement on the platform.
With the three completed goals, you get to see a company whose moves are not only more offensive than they are defensive, but one that is also disciplined at remaining true to its strategy.
Engagement as a matter of concern
Users and listening hours on Pandora Media Inc (NYSE:P) are matters of serious concern, not just to investors, but the management as well. Increasing competition in the music streaming businesses is particularly a major challenge. Amazon.com, Inc. (NASDAQ:O:AMZN), Apple Inc. (NASDAQ:O:AAPL), Alphabet Inc C (O:GOOG) and Spotify are all Pandora’s competitors in one way or another.
However, Pandora can be seen trying to downgrade the threats in its industry, sometimes by plugging into the assets of the competition or acquiring to make up for what it lacks. The acquisition of assets such as Rdio and Ticketfly go beyond simply diversifying Pandora’s revenue streams to actually boosting engagement on the platform. For example, brokering ticket sales allow Pandora to be in front of millions of potential subscribers. Rdio assets also bring the benefit of shortening the time to market with a subscription service, which should be important in enhancing engagement as Pandora expands overseas.
In using competitor’s strength to its advantage, Pandora has launched an app for streaming music on Apple’s 2015 Apple TV media device. The app is available free of charge and it is also interactive in nature.
It is not a far-fetched dream that with proper engagement and the right assets, Pandora can significantly expand its total addressable market.
Pandora’s revenues have accelerated in the last several quarters with the company finishing 3Q2015 with revenue of $311.6 million, up from $285.6 million.
Can Pandora be a Netflix?
It still goes back to the matter of user engagement on Pandora Media Inc (NYSE:P)’s platform. Internet companies scarcely rebound after they have appeared to be losing the grip of subscribers. That is scary because it would mean that Pandora might never get its numbers back or improving at the desired rate. However, there is precedence – Netflix, Inc. (NASDAQ:O:NFLX). The now subscription video giant saw its subscriber numbers crater 3Q2011 as it dealt with multiple issues. However, it did rebound and in a powerful way.
As such Netflix is not only a precedent, but also an inspiration to Pandora and its investors that things can be done.
Bottomline
Pandora Media Inc (NYSE:P)’s strategy and execution inspire hope despite the pressures.
Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.