M+E Connections

Pandora is still working as fast as it can to complete deals with music labels — especially the major three labels — before it can launch its planned on-demand subscription music service that will compete with rivals including Spotify, according to Dominic Paschel, Pandora VP of corporate finance and investor relations.

Talks with the labels are ongoing and Pandora already signed about 1,800 direct deals, he told the Nomura Media, Telecom & Internet Conference in New York Aug. 16. Investors, of course, care the most about its progress with the three major record labels (Sony, Universal and Warner), he conceded. But he provided no specifics on the status of Pandora’s talks with those labels, which he said own about 90% of global music catalogs combined.

Paschel had no update on timing of the on-demand service’s launch. While announcing that it bought the “key” assets of music streaming service Rdio for $75 million in cash, Pandora said last year that it expected to offer an “expanded Pandora listening experience” by late 2016, pending its ability to obtain proper licenses.

The on-demand service that Pandora launches will be “differentiated” and is “not going to be a clone” of other on-demand music services currently available, Paschal said at the conference. “It’s all about data,” he said, calling data “oil in the future.”

Pandora, right now, is “sitting on so much oil,” he said, pointing to the “fifteen years of data” that it has on hand. The coming service will recommend music to users in a way that will be superior to what other services can provide, he said, adding that the service will also offer users “simplicity.”

Asked by the moderator what Pandora will look like 3-5 years from now, he said it will be focused on three businesses: its current, core ad-supported music service, the coming on-demand business, and live events/sponsorships.

“We do know there’s a consumer want” for on-demand music despite a hesitancy to pay for it among many of them, he said. Close to 35-40% of Pandora users go to other music services at some point to listen to songs or to listen to music on demand, he said, adding the number one source for those users is YouTube, but they use other subscription services also.

“We want to be every aspect of the musical journey, and be a major contributor to top 20 artists all the way down to the emerging artists who would love to put their music on Pandora,” he said, adding the company wants to be “a part of that artist economy” in general, including live events and radio.

He predicted that Pandora’s core Internet radio business “will still be the majority” of Pandora’s revenue over the next five years or so. He estimated that core business can grow from $1.4 billion in revenue this year to about $2.4 billion by 2020. It’s making a “modest assumption” of the on-demand music business, he said, adding: “If we can convert 10 percent of about 110 million actives, we can grow that business to about” $1.3 or $1.4 billion. Sponsorships and the ticketing business-should contribute about $85 million this year and can grow to about $300 million, he said. Combined, the company sees about a $4 billion opportunity for the three Pandora businesses, he said.