Businessmodel of Pandora Media

Customer Segments

Pandora’s music streaming platform serves two principal customers segments: general consumers and advertisers. The service attracts users who wish to have an automated stream of music tailored to their tastes or who wish to discover new music based on their current preferences.

It is currently available only to users in the US, Australia and New Zealand. A recent poll found that, of Pandora’s 80 million active monthly users, approximately 45% were aged between 13 and 29, while users aged between 35 and 44 accounted for the largest single share of users with 21%. Pandora also sells a range of advertising solutions to agencies and brand marketers. The Company has provided advertising solutions to companies across a range of sectors, with customers including Taco Bell, Esurance, Fabletics, Activision and Kellogg’s.

Value Propositions

Pandora’s principal value to consumers is that it provides a music streaming service free of charge. It has access to a broad library of music, including current and historical content, and provides automated, tailored streams to its users based on their personal listening habits. The platform also automatically identifies tracks with musical similarities – including melody, rhythm and instrumentation – to music the user has already liked, providing an ongoing music discovery service.

For advertisers, the Pandora platform provides access to a captive audience of more than 80 million active monthly users. The Company provides localised and targeted advertising solutions, making it easier for brand marketers to connect with their target audiences.

Channels

Pandora’s music streaming service can be accessed via its mobile and desktop websites at www.pandora.com. The Company also provides mobile, tablet and desktop apps for Android, iOS, Blackberry and Windows. Additionally, Pandora has developed integration with a range of devices – including games consoles, home audio devices, televisions, set-top boxes and streaming players – as well as car models, through which Pandora can be accessed directly.

Customer Relationships

The Pandora platform is available to users free of charge and on a self-service basis through the Company’s website. The Company’s streaming service is available without registration, requiring no interaction with Pandora representatives. Registered users, however, can begin to create personalised streams and benefit from the platform’s automated music discovery service, which enables users to discover new music without having to make searches themselves. Users can also upgrade for a premium account on a self-service basis.

Advertising customers must contact members of the Pandora sales and marketing team in order to discuss the Company’s various advertising solutions directly. Pandora keeps its customers updated with platform developments and provides reporting on the music industry through its blog.

Customers can also interact directly with the Company through its Facebook, Twitter and Instagram accounts.

Key Activities

Pandora develops and manages a music streaming platform and automated music discovery service. It allows users to listen to personalised online radio stations based on a user’s artist preferences, and is available across a range of devices and integrated platforms.

The Company also provides a range of advertising solutions to brand marketers and advertisers, including audio, display and video products, and premium native advertising, sponsorships and branded content.

Key Partners

Pandora collaborates with integration partners and content providers. The Company claims to have more than 1,000 partner integrations making the Pandora platform accessible across a number of automobiles, automotive aftermarket devices and consumer electronic devices. This includes set-top boxes, games consoles, cable and satellite providers, blu-ray players and televisions provided by companies included LG, Sony, Yamaha, Panasonic, Xfinity and DirecTV.

Pandora also maintains partnerships with content providers. It launched a partnership with independent music rights group Merlin in 2014, with which it negotiates royalty rates directly instead of paying compulsory rates set by the U.S. government, and has collaborated with podcast provider This American Life which now has its own channel on the Pandora platform.

Key Resources

Pandora’s key resources are its technology and software platform, its music partnerships and content, its IT infrastructure and its personnel. The Company’s automated music discovery service is powered by its proprietary technology that stems from its Music Genome Project.

It has two patent applications filed with the US Patent and Trademark Office for ‘Internet radio and broadcast method personalized by DJ’ and ‘Internet radio and broadcast method with selectable explicit lyrics filtering’.

Cost Structure

Pandora incurs costs in relation to the development of its software platform and technology, the maintenance of its IT infrastructure and the retention of its employees. The Company’s largest cost, however, concern its payment of royalties to artists and studios. In September 2015 it was reported that Pandora had paid a total of $1.5 billion in royalties since its launch, and had paid $500 million in just the last year.

Revenue Streams

Pandora’s principal stream of revenue is advertising, accounting for a reported 81% of the Company’s total annual revenue of $933.3 million in 2015. The Company provides audio, display and video advertising solutions to advertisers and brand marketers, across all supported platforms: mobile, tablet, desktop, connected devices and connected cars. The Pandora platform also collects user data so that advertisements can be targeted more effectively.

Pandora is estimated to show approximately seven display ads per hour and play around 2.5 audio ads per hour. Ads are priced on a cost per impression basis, with ranging from 4% for a basic display advertisement to $25 for a large video ad. Additionally, Pandora offers premium solutions such as branded radio stations, sponsorships and native advertising. Pandora also generates revenue through the sale paid-for subscriptions. Users are able to access a premium, ad-free version of the platform for $4.99 per month or $54.89 paid annually.