Elevation is hoping to invest some $100 million dollars in the popular personalized music service, Pandora.
The question is why?
Firstly, it's part of their mission to make large-scale investments in consumer-related businesses, as their stated goal is to make "...large-scale investments in market-leading media, entertainment, and consumer-related businesses..." which definitely puts Pandora in the running.
In June, Elevation bought five million shares of Facebook for $120 million, on top of a $90-million investment for 2.5 million shares back in November 2009.
So, let's look more carefully at the kinds of companies Elevation aspires to acquire. The target companies based on the following criteria:
- Unique content
- Potential for market leadership
- Management team committed to increasing shareholder value
- Attractive core business model
- Opportunities for operational improvements
- Potential for new growth through new licensing or strategic
use of technology
- Potential for new growth in new geographies or through the development and deployment of new business models
Let's look at the criteria that Pandora meets. Pandora certainly has unique content. Thanks to the Music Genome Project, the custom mixes on Pandora go far beyond simple genre-based classification, and analyses songs instead by over 400 factors like melody, harmony, rhythm, instrumentation, orchestration, arrangement, and lyrics.
Potential for market leadership is certainly also there. In a recent interview with Bambi Francisco, Steve Carpenter, an Internet entrepreneur who also provides financial analysis of private companies, said Pandora could see 100 million registered users in 2010. Carpenter also predicted that Pandora would double its revenue to $125 million. And, Carpenter points out that Pandora has three assets: 1) huge distribution 2) killer recommendation engine 3) great relationships with music labels.
Their potential to grow into new demographics and markets with strategic use of new technologies, the final three points, are easy to see when you delve into Pandora's history.
Initially a service that was oriented towards companies in need of music recommendations. When this original incarnation, called Savage Beast Technologies, failed to hit the mark the company switched to the consumer market opening Pandora. Then in 2007 when a federal royalty board had raised song royalty fee's, cutting off international users, Pandora started a grass roots campaign to mobilize end users and get the rates re-negotiated.
More recently Pandora has also created mobile versions of the software with apps for iPhone, Palm, Blackberry and Android based phones. Pandora has also been included in Ford's voice-activated Sync system, allowing for more mobile usage of their services. Pandora can also be accessed with stand-alone players with a Reciva base.