Why Elevation wants to invest in Pandora

Katie Gatto · August 25, 2010 · Short URL: https://vator.tv/n/115d

An estimated 100M users in 2010, revenue doubling, amazing assets, what's not to like?

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.

Katie Gatto

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Pandora

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Joined Vator on February 21, 2008

Pandora, the leading internet radio service, gives people music they love
anytime, anywhere, through a wide variety of connected devices: laptop and
desktop computers, smartphones, connected BluRay players, connected TVs,
etc. Personalized stations launch instantly with the input of a single “seed” –
a favorite artist, song or genre. The Music Genome Project®, a deeply
detailed, hand-built musical taxonomy, powers the personalization or
Pandora. Using this musicological “DNA” and constant listener feedback
Pandora crafts personalized stations from the more than 800,000 songs that
have been analyzed since the project began in January 2000.
More than 75 million people throughout the United States listen to
personalized radio stations for free on Pandora through their PCs, mobile
phones and devices such as the iPad, and connected in-house devices
ranging from TVs to set-top boxes to Blu-Ray players. Mobile technology has
been a significant factor in the growth and popularity of Pandora, starting
with the introduction of the Apple app store for the iPhone in the summer of
2008. Pandora instantly became one of the most top downloaded apps and
today, according to Nielsen, is one of the top five most popular apps across
all smartphone platforms.

Pandora is free, simple and, thanks to connectivity, available everywhere
consumers are – at the office, at home, in the car and all points in between.
In 2009 the Company announced that Pandora would be incorporated into
the dashboard in Ford cars via SYNC technology; GM has already followed in
announcing plans to integrate Pandora into its vehicles and Mercedes-Benz
introduced their Media Interface Plus device that works with the
free Pandora iPhone app to provide direct control of Pandora from in-dash
stereo controls. This was all great news for the millions of Pandora listeners
who had been plugging their smartphones into car dashboards to listen to
personalized stations while driving. More than 50 percent of radio listening
happens in the car, making it a crucial arena for Pandora.

Today tens of millions of people have a deeply personal connection with
Pandora based on the delight of personalized radio listening and discovery.
These highly engaged listeners reinforce the value Pandora provides to: 1)
musicians, who have found in Pandora a level playing field on which their
music has a greater chance of being played than ever before; 2) advertisers,
who benefit from the multi-platform reach of Pandora, as well as its best
practices in targeting consumers for specific campaigns; 3) the music
industry, which has found in Pandora a highly effective distribution channel;
and 4) automobile and consumer electronics device manufacturers, who have
noted that incorporating Pandora into their product makes it more valuable
to consumers.

Pandora continues to focus on its business in the United States. The radio
arena has never been hotter, thanks to technology that enables radio to be
personalized to the individual and more accessible than ever before. Right
now millions of people listen to Pandora in the United States and we hope
someday to bring Pandora to billions of people around the world.

Timeline:
• 2000 – Tim Westergren’s Music Genome Project begins.
• 2005 – Pandora launches on the web.
• 2008 – Pandora app becomes one of the most consistently downloaded
apps in the Apple store.
• 2009 – Ford announces Pandora will be incorporated into car
dashboard. Alpine and Pioneer begin selling aftermarket radios that
connect to consumers’ iPhones and puts the control and command of
Pandora into the car dashboard.
• 2010 – Pandora is present on more than 200 connected consumer
electronics devices ranging from smartphones to TVs to set-top boxes
to Blu-ray players and is able to stream visual, audio, and interactive
advertising to computers, smartphones, iPads, and in-home connected
devices.