Pandora sees revenue up 80% this quarter

CEO Joe Kennedy on monetization of personalized radio on the Web

Even though Pandora recently introduced a $36 annual subscription service called Pandora One to augment its advertising revenue, the Emeryville, Calif.-based company expects sales to rocket in the current quarter and double this year, thanks in part to its popularity on the iPhone app. In this three-part interview segment, I talk to Joe Kennedy, CEO of Pandora, a personalized radio station that creates music stations based on personal preferences.

Kennedy said that while the Pandora Web site draws 6.5 million unique visitors, unique visitors on its mobile presence adds another 3 million visitors a month, bringing Pandora's total monthly unique visitors to nearly 10 million.

Kennedy told me, when I recently interviewed him on stage at the ContentNext's EconSM conference in San Francisco, Pandora now has 5 million iPhone activations and 1 million Blackberry activations.

Here's my interview, partly edited. 

BF: Pandora generated $20 million in revenue last year. And, it looks like you're going to double this year. Where do you see revenue this quarter and this year?

JK: The first couple of months this year were a little bumpy. Advertisers were figuring out what their budgets were. But we've been having a fantastic year in terms of generating ad revenue. We are currently tracking up 80% this quarter verses the same quarter last year and I think we have a decent shot of doubling to $40 million this year.  

BF: Is it because you're getting more advertisers on board or is it because you're getting higher CPMs? And, what are CPMs on Internet radio?  

JK: It's really about getting more advertisers. Part of it is that that we have Web advertisers and we have mobile advertisers, so the platform has broadened in terms of what we offer advertisers. But the single most important thing is that we are kind of getting to the audience scale that makes us attractive to more and more advertisers. Right now we have about 6.5 million monthly uniques in comScore and doesn't count other few million on mobile. So when you have an audience of 10 million, the advertiser would need to be there to hit the target. We're attracting more and more advertisers and that's the key.  

BF: What are the CPMs?  

JK: It varies a lot. Mobile, Web and audio - in general is around the $8-$10 range. If you've been to Pandora, you've seen we work a model where we give an advertiser a lot of real estate. Ours is not a site where you see 15 ad banners and buttons simultaneously. We built our ad model around any given moment. The advertiser gets a lot of advertisement to engage the consumer. We think that's really key because in the Internet world, a lot of people are focused on impressions but that's not really what an advertiser buys. Advertisers buy an opportunity to engage with a consumer. So we really work to have the kind of ad units that allow advertisers to tell their story to generate an interaction.   

BF: Talk about those ads. How are those ads engaging those users and how do you measure that engagement?

JK: Our core ad unit is letting the advertiser surround the experience with their ad. It's like we give them the inside front cover of the magazine, on the Web. A remarkable thing about our story is that many of the advertisers are brand advertisers. They're working upper-funnel metrics. They will use market research techniques to understand how the campaign is moving awareness for their product and purchase considerations for that product. 

BF: Are you just advertising right now? How do those ads look on the Web? They're not audio ads, correct?  

JK: We do a very small amount of audio ads. We have to be very careful about preserving the user experience. We do think there is a role for audio ads particularly as we move more and more into cars, into homes, etc. But we never envision the kind of super heavy audio load that I think radio has made a mistake with over the past couple of decades. So the cornerstone of our advertising is graphic. But it's a big graphic. It's not little buttons or banners or leaderboards. The way I describe it is - to use the analogy of the magazine world. There were always a bunch of ads in the back of the magazines. But what big brands bought on magazines is the inside front cover of the magazine which use a lot of real estate to tell their story. We give virtually 2/3rds of the screen real estate on Pandora that goes to the advertiser. Our tuner is very simple and very efficient. Our simple design allows us to give the advertiser a lot of real estate which gives them latitude to do their thing.   

BF: What time does a user listen and watch radio during the day? What are the peak times? How often do they actually watch while they're listening to music?  

JK: There's a bunch of pieces to that puzzle. One of the important things about Pandora is that the service is very engaging. It gives you the opportunity to rate a song if you like or dislike it and finding more about artists that interest you. As a result, people interact with Pandora an average of six times an hour and the average session on Pandora is about three hours. We are getting 18 interactions with the Web site in a typical Web session and those are our opportunities to deliver graphic advertising.   

BF: You mention that they have six opportunities to touch an advertisement. And you're only allowed to skip songs six times, and you told me that was not self-imposed but actually that's what the industry wants you to do because they don't want the user to have control. But if it was up to you, you would probably increase the number of times a person can skip so you can serve up more times to make an impression, right?

JK: The skips are not actually that significant. People don't use the skip button much. But that is the deal for Internet radio and the licenses we have. It's a reasonable deal.  

BF: What can we expect from Pandora that you will implement to bring people back to serve an impression? 

JK: We recently added lyrics a couple months ago for users to look up while listening to that song which gives the user another reason to come back.  

(Stay tuned for the next interview with Joe Kennedy, and his thoughts on monetizing Pandora on the iPhone)