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Pandora CEO Joe Kennedy shares a history lesson about radio, and current subscription models
BF: You've been the CEO of Pandora for five years so you've become a student of radio. Give us a brief history lesson on the evolution of radio since the 1920's, some milestones and how the Internet is taking it to the next level.
JK: Radio does go back to about 1920 in the U.S. Back then, picture people in their homes listening to the World Series or listening to an address by the President or HG Wells' "War with the world." Fast forward, TV comes along, grabs entertainment off the radio and so radio becomes more about music and continues to grow right through the 50s and 60s. Then along comes FM, which enables an expansion in diversity of music that is possible. AM kind of reconfigures itself around talk radio, news radio, etc. Now we have the Internet; tremendous explosion in terms of the diversity particularly in terms of music. Instead of one classic rock station, you can have your own "Pink Floyd" station. We've seen a tremendous evolution in terms of radio which millions of people would be listening to at the same time to an incredibly personalized one that is about you.
BF: How many Internet radio stations are there?
JK: Hundreds of thousands. Essentially there is an infinity of Internet radio stations and so it has made it tremendously personal. It's taken a medium that was broadcast and made it one-to-one medium.
BF: Which is what's happening with society as a whole. They're interacting in their own little world with their own little audience. So what does that say about society?
JK: It has moved from a mass market to mass customization personalization. There are so many aspects from manufacturing to media. It's become much more about the individual than some mass of people.
BF: What about in terms of how radio stations are created especially with Pandora. You don't really have a DJ anymore or do you?
JK: We use the Music Genome Project, which we think can simulate than an all-knowing DJ who is focused on your taste as opposed to a traditional DJ who is trying to keep a half-million people all happy at the same time, which is how radio kind of devolved into a lower denominator kind of programming. The nature of the Internet kind of allows us to move beyond that to the next level.
BF: How automated is it today? How much do you need those people to create personalized radio stations or can you move off and have it all automated?
JK: Pandora is a mix of human work and tremendous automation. The analysis we do - we have 20 people listening to individual songs, spending 10 to 15 minutes categorizing them according to this taxonomy - this gene set. It's a very manual expert musician type of work. But once that is in a database, we have automated algorithms that enable a replacement of a DJ for the two million listeners of Pandora today. So it is this very interesting mix of this development that is very manual. But once the electrical property is in place, it's scalable from a technology standpoint.
BF: Talk about the consumption today and the different options and where you see more people consuming. There is something relatively new because of the Internet and that is a subscription to all the music. For example, $15 you can have access to everything and you can be your own DJ, play songs as much as you wish, as oppose to Pandora where you have somebody playing music for you but you don't own it. Another example would be Apple's iTunes where you can download it a la cart. You do not have to buy the entire album. What is the break down in terms of what are consumers preferring to do?
JK: Historically, there are two forms of music listening. You can listen to the radio or you can own it. It's been like this for many years and actually the breakdown has been eighty-twenty for most people. For most people, 80% is what they listen to the radio, and 20% they own. Now there is a third kind of music that you can rent which is kind of like a subscription service. You don't own the music from Rhapsody or Napster. You can listen to anything or want, but you don't own it. Thus far, the uptake of that has been very modest, maybe a few million subscribers. There are people as you fast forward 20 years into the future, that there really won't be a reason to own music because you'll be able to stream what you want, whenever you want through some kind of subscription service. Again, that has not even happened yet except for a very small uptake but it would be interesting to watch over time how the mix of music you own, radio music, and the music you rent or subscribe to develops over time.
BF: Will you ever charge a subscription for your service?
JK: Pandora does have subscription options for those people who want to have advertise-free experience. We also have a bit rate which is super high quality. We do have a premium offering that offer for $3.00 a month called Pandora One. We see a modest uptake over time but the bulk of the story is really about an ad supported free to the consumer experience.
BF: What percentage of your users have a subscription?
JK: It's tight.
BF: Under one percent?
BF: Thanks, Joe
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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
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.
• 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