ey case compeition pandora

Cameron Chinn

Venkat Rao

Elaine Raymond

Vance Roush

Purple & GOLDC O N S U L T I N

G

Position Pandora to create new revenue streams and refine existing ones, for long-

term sustained growth

Goal

NPV = $11,195,609

Purple & GOLDC O N S U L T I N G

Situation Analysis Strategy Action

Objective


Introduction

Situation


Situation Analysis ActionStrategy ConclusionAnalysis

Problem

0

20

40

60

80

100

120

140

160

2005 2006 2007 2008 2009 2010 2011 2012

Use

rs (

Mill

ion

s)

Year

Pandora Users

Internet Radio Users

Increasing Partners and Venues In 2008, Pandora built an iPhone app that let people stream music. Almost immediately, 35,000 new users a day joined Pandora from their cellphones, doubling the number of daily sign-ups

At the end of 2009, Pandora reported its first profitable quarter and $50 million in annual revenue — mostly from ads and the rest from subscriptions and downloads. Revenue will probably be $100 million this year, said Ralph Schackart, a digital-media analyst at William Blair.

300K Subscribers48M Users



Industry Potential

PANDORA Online Radio Digital Downloads

CDs

Cost Free + Subscription

Free + Subscription

Per song fee Full CD Purchase

Quality Recommended by music experts

Non-customizableOnly mainstream

On Demand songs showcased

Must purchase music

Loyalty Personalized experience built (high switching costs)

Stations not personal enough(easy to switch)

Oversaturation (iTunes, Amazon, Napster)

Dependent on artist

Differentiation Music Genome Project

Low Differentiation

Purchasing experience

Easy to copy (Piracy)



Broad Competitive Landscape

Proven that consumers prefer Music Genome Project (recommendations from music experts) over community generated recommendations



Competitive Options

Users

Partners- Mobile

- Home Entertainment-Cars

New Revenue Stream Subscription

Revenue Ad RevenueMAXIMIZE

New Revenue Stream

Ad Partners

240.4 Million People Ages 14+*29% Stream Online Audiot

69.7 MillionPotential Listeners

20% of radio users listen to online radio – Go beyond the browser!



Pandora’s Current Business Model


SituationAnalysis


Strategy Options



Utilizing the Framework

Evaluating Key Factors:• Investment Costs• Revenue Generation• Increase in Brand Value• Legal Barriers• Feasability

Possible Strategies:• Pandora ‘Open Mic’• Pandora Video• Pandora International• Refine Current Offerings



Framework Analysis




High

High

Payoff

Low

Low

Feasibility

GE Analysis

Open Mic

Pandora Intl

Pandora Video

Refinement


AnalysisStrategy

• Pandora needs Long-Term Sustainable Growth Model Ad revenue and hopeful subscriptions not enough

• Short-Term Strategy – “Open Mic” Platform

• Long-Term Strategy– Refinement is sustainable – Record Label

• Product extension around valued artists



Overall Strategy

• Lower Time Limit– 20-40 hours a month

• 11.9% of users• 21% of hours• No direct revenue from

users• Annual Cost Savings =

$586,000

– First continuance payment at 20 hours


Refinement


• Watch Advertisement / Payment– Continuance fees:

• Watch extended ad• Pay continuance fee

– 20 hrs - watch 1-min commercial or pay $.25– 40 hrs - watch 2 1-min commercial or pay $.99

• Revenue from video advertisement is $90 per 1000 views


Refinement


• Online Battle of the Bands– Subscriber to enter

• 250,000 new subscriptions over 3 years = $9,000,000

– Registered to vote– $10 per song

• Projected participation:– Myspace music pages = 8 million– Year 1 = 200,000 songs submitted– Year 2 = 300,000 songs submitted– Year 3 = 500,000 songs submitted

– Available for listening/voting for one week



Open Mic

– Set-up

• Top ten songs listed on home page

• See all page

• Searchable by genre, region, artist

– Thumbs up, thumbs down

– Fits with Music Genome Project (Core Competency)



Open Mic– Incentive:

• Potential heard by 50 million listeners (1/6 of the US population)

• Your own channel• Weekly “Winner’s Spotlight”• Download the song• Become part of Pandora’s music

library

CROWD-SOURCING

Joe Guitar18-34 aspiring musician

8M Myspace Music Artists



• Access to artists with established following (Open Mic)

• Ability to gauge where concerts would be on demand and what demographic to target

• Data to track most popular music trends • Established Distribution Network• Market Potential: Indie Market

– The global music market is approximately $40 to $48 billion

– 30% of the global music market belongs to indie labels ($12 to $16 billion)

– Internet sales in 2004 account for 6% of overall units sold

Online Record Label for Indie Artists



• Open Mic– There may be imitation, but

Pandora will have the first mover advantage

• Indie Online Record Label – Competitors may start their own

record label, but Pandora has a larger user base in the US, therefore more potential fans than the competition

Competitor Reactions




StrategyAction



Financials

Revenue Assumptions


Financials

Cost Assumptions



Financials

NPV = $11,195,609



Timeline

Purchase TV ads on MTV

Implement Video Ads

Launch ‘Open Mic’

2011 2012 2013

Performance Analysis of Initiatives

Evaluate Feasability of Online Record

Label


Purchase Web Video Ads on Hulu

Web Still Ads on Facebook & MTV.com

Purchase Ad Banners at Concert Venues


ActionConclusion

Personalized Radio

• Limited usage of “Next Track” option• No song search capability

Competitor Analysis

User Radio• Widespread use

• Social networking

• Complex user interface• Recommendations

requires software download• Radio based on genre

• Individual song analysis• Free to use online• User friendly interface• Portable option

Streaming Radio

• Brand-name recognition

• Portable

• Preset stations only• Subscription fee• Stations don’t play desired music

Digital Downloads

• Portable

• Song search capability

• Cost per individual song• Many alternatives• Only accessible for credit card holders

Type Advantages Disadvantages

500% growth in user base over 5 years increases revenue over tenfold.

Revenues

EBIT

0

20

40

60

80

100

120

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160

180

2007 2008 2009 2010 2011 2012

Year

Do

llars

(in

Mill

ion

s)

Financial Projections

Background | Market | Competition | Business Model | Financials | Exit Strategy

Expected Financials Revenue and EBIT

• Expanding user base• Increasing user

referrals• Growing subscription rates

Pandora begins to expend resources on advertising, resulting in:

2007 2008 2009 2010 2011 2012

Revenue by Source

Advertisements Subscriptions

2007 2008 2009 2010 2011 2012

Financial Calculations

2007 2008 2009 2010 2011 2012

Potential Listeners

69.7Million

79.8Million

91.4Million

104.6Million

119.8Million

137.2Million

Subscription Fee

$36 $36 $36 $36 $36 $36

Potential Market Value

$2.51 Billion

$2.87 Billion

$3.29 Billion

$3.76 Billion

$4.31 Billion

$4.94 Billion

Pandora’s Market Share

14.9% 19.9% 25.2% 32.4% 38.8% 44.4%

Subscription Rate

0.28% 1.03% 2.47% 4.32% 5.92% 5.99%

Subscription Revenue

$1.05Million

$5.88Million

$20.5Million

$52.7Million

$99.1Million

$131.4Million

Year User Acquisition Rate Per Day

2006 9,600

2007 15,000

2008 20,000

2009 25,000

2010 30,000

Revenue Calculations (all numbers are averages)• Benchmark of $14 million in 2007

• CPM $10-50 based on type of advertising package

• Users go on 2-3 times per week for 2-3 hours

2007 2008 2009 2010 2011 2012

Ad 92.5 75 50 30 20 15

Subscription 7.5 10 20 35 57 85

Percent of Overall Revenue for Each Source in a Given YearRevenue sources divert from advertisements to subscriptions. While ad

revenue continues to rise, its rate of growth

decreases as number of users increases.

Increase in user acquisition rate based on continuation of viral growth and implementation of

direct advertising and new products.

Revenue Calculations

Market Trend Calculations (Cont.)

37.56% Increase of Broadband users increase per year

14.5% of Internet users use Streaming Audio

39% of Internet users use Streaming Audio

x

37.56% Increase of Broadband users increase per year

All Competitors

Relationships Between Labels & Media

• Case Study– http://www.fabchannel.com/

• Online Concert Archive– Very Popular in Europe

• BUT record labels hurting– Hesitant to make any deals with strictly web

companies • Radio vs Online Radio Dichotomy • Cash is King!

http://www.fabchannel.com/

Pandora and the iPhone

• Users are buying about a million songs a month now from these affiliate links on Pandora

• 20% are coming directly from Pandora’s iPhone app, which includes an easy link to open the iPhone’s iTunes app, and buy a track.

• Another feature driving affiliate sales is the bulk music purchase option. This allows you to bookmark songs on Pandora, and with one click buy them all on either iTunes or Amazon. – 10% of web users who are buying music through Pandora are

using this bulk buy feature

Pandora Projected Revenue

• At the end of 2009, Pandora reported its first profitable quarter and $50 million in annual revenue — mostly from ads and the rest from subscriptions and payments from iTunes and Amazon.com when people buy music. Revenue will probably be $100 million this year, said Ralph Schackart, a digital-media analyst at William Blair.

http://amazon.com/

Pandora Playing Everywhere

• Devices made by LG, Samsung, Sony, Sanyo, Haier, Divx, Toshiba and Panasonic

• Biggest boost – embedding Pandora in automobiles

• Ford, Alpine and Pioneer are three companies that are going to be putting Pandora inside their cars and automobile music systems, respectively. – The service will piggy-back on 3G wireless connections

on the latest generation of cell phones. – Nearly 47 percent of radio listening is in the car

Imeem and Last.fm partner with 4 major record labels

• Imeem– http://mashable.com/2007/12/10/imeem-univers

al/• Last.fm

– http://mashable.com/2008/01/23/lastfm-free-music/

http://mashable.com/2007/12/10/imeem-universal/

http://mashable.com/2007/12/10/imeem-universal/

http://mashable.com/2008/01/23/lastfm-free-music/

http://mashable.com/2008/01/23/lastfm-free-music/

Fired Customers

• “Fired” Customers– 35% choose not to watch commercial or pay– >40 hr users are subscribers or pay– So, 20-40 users are most unprofitable– 35% of 20-40 hr users = 666,400 users– Only 4% of total users, but save royalty costs

Risks

• Watch ad v. pay– Users don’t pay or watch– Deters users from site

• Open Mic– Lack of participation in contest– Lack of new users/subscribers– Advertising costs exceed budget– Lack of awareness– Quality control

ey case compeition pandora

Documents

pandora open mic

music experts

global music market

annual revenue

revenue generation

objectivegoalposition

pandora international

myspace music pages