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As $100M IPO rumors abound, Westergren talks about the music industry and where Pandora is headed
I got a chance to chat with Pandora founder Tim Westergren, who will be presenting at Vator Splash February 3, in San Francisco. While he was reticent to discuss Pandora's rumored IPO this year, he did state that an IPO will not change the service that Pandora delivers or how the business is run.
(Editor's note: There's still time to get early-bird tickets to hear Tim share lessons about building Pandora. Go to the registration page to reserve your tickets and see the agenda. These prices are good until next Monday!)
The New York Times just published an article on the shaky future of the digital music industry. Do you worry that if the music industry falls on hard times, there will be a backlash against Pandora and other Internet radio sites?
I don’t think so. I think over time what this pressure will do is force the industry to figure out which services are accretive to their business and which aren’t. I think Pandora really passes that test. I think we’re a positive influence on the overall economics. I think the overlying fundamental issue is the fact that people aren’t buying CDs as much. But I think Pandora is a bright spot in the industry.
How strong is Pandora’s paid subscription service? If royalty rates shoot up again, could you see Pandora being forced to return to a paid-only service?
If rates shot up, we’d be in big trouble. It’s our single biggest cost. Rates are arbitrated by Washington, so I’m not concerned about that. If the rates went way up it would damage the future of internet radio as a whole.
You hung in there when most other people probably would’ve bailed. What convinced you to keep Pandora going?
I think the real strength we took was in our users. Our usage was really growing dramatically. We had a lot of faith that we built something that people really liked. And we played fair with royalties. We weren’t building a business on piracy, we weren’t playing fast and loose with royalties.
How/why did you make the decision to step down as CEO and hand over the reins to Joe Kennedy?
It made a lot of sense. He’s a terrific guy, very smart. The way our roles are laid out, it allows us to do what we do best.
Do you ever see yourself stepping back in as CEO? (À la Google)
No, no, no.
Does Pandora have plans to go public this year?
Going public is not something we like to talk about.
Would going public allow Pandora to expand and maybe buy up other companies?
I don’t think the path that Pandora takes will influence how it runs.
Pandora is now integrated with the Ford SYNC system—but for those of us who don’t trust American auto manufacturers, will it be coming to any other cars in the near future?
Yes, it’s coming to GM, Toyota, the BMW Mini, and it’s available now with one of the Hyundai cars.
I read that Samsung is releasing a refrigerator that is integrated with Pandora. What else is it integrating with? Where do you see Pandora being five years from now?
Every piece of consumer electronics is connected to the Web in some way, and if a device has the ability to play sound then we’re interested. Our ultimate goal is to put Pandora everywhere.
How many employees does Pandora now have?
I can’t think of the number off the top of my head, but it’s over 200.
What are the most important lessons that you learned as an entrepreneur?
These will sound a bit like platitudes—the reason things are platitudes is because they’re very true. How important the team is. You’re wise to recognize that these things require multiple people with different skills. Finding those people and giving them the ownership and the power to go do their thing—that’s the cornerstone of building a great thing. We have a lot of talented people who are given a lot of autonomy and ownership. You need to be generous with talent.
I also think that it’s very important to have a strong sense of who you are. What you’re doing and how you define yourself culturally. We treasure culture [at Pandora]. It pervades everything you do—how you treat your employees, how you treat the people who use your service, how you conduct yourself, how you make financial decisions, how you plan your business…
What tips/advice would you offer other entrepreneurs getting into the digital music scene?
It’s not for the faint of heart. I’ll tell you where I think there’s opportunity: the Web now has democratized the tools of promotion. If you’re savvy and hard-working and smart, you can really generate a lot of value on the Web with very little investment of money. The music industry has historically required large investments of marketing money. Record labels provided that cash so you could get on the radio, and hence artists spent their careers trying to get attention. I think the amazing thing now is that a well thought-out online marketing and promotions presence can be tremendously powerful.
If I were getting into this industry today I would do it as a digital marketing promotions manager, like a virtual label. And that opportunity didn’t exist before and you’re seeing that grow more and more. You’re almost like another member of the band.
Do you think that the Internet and these do-it-yourself marketing tactics on sites like MySpace have fragmented the music industry?
There’s no doubt that it’s fragmented massively with the Web. We’re evolving to a business where the hits are not as big but there’s more of a middle class that didn’t use to exist before. That’s the natural evolution when you democratize the means of production and promotion.
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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