Cameron Chinn
Venkat Rao
Elaine Raymond
Vance Roush
Purple & GOLDC O N S U L T I N
G
Position Pandora to create new revenue streams and refine existing ones, for long-
term sustained growth
Goal
NPV = $11,195,609
Purple & GOLDC O N S U L T I N G
Situation Analysis Strategy Action
Objective
Purple & GOLDC O N S U L T I N G
Introduction
Situation
Purple & GOLDC O N S U L T I N G
Situation Analysis ActionStrategy ConclusionAnalysis
Problem
0
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2005 2006 2007 2008 2009 2010 2011 2012
Use
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Pandora Users
Internet Radio Users
Increasing Partners and Venues In 2008, Pandora built an iPhone app that let people stream music. Almost immediately, 35,000 new users a day joined Pandora from their cellphones, doubling the number of daily sign-ups
At the end of 2009, Pandora reported its first profitable quarter and $50 million in annual revenue — mostly from ads and the rest from subscriptions and downloads. Revenue will probably be $100 million this year, said Ralph Schackart, a digital-media analyst at William Blair.
300K Subscribers48M Users
Purple & GOLDC O N S U L T I N G
Situation Analysis ActionStrategy ConclusionAnalysis
Industry Potential
PANDORA Online Radio Digital Downloads
CDs
Cost Free + Subscription
Free + Subscription
Per song fee Full CD Purchase
Quality Recommended by music experts
Non-customizableOnly mainstream
On Demand songs showcased
Must purchase music
Loyalty Personalized experience built (high switching costs)
Stations not personal enough(easy to switch)
Oversaturation (iTunes, Amazon, Napster)
Dependent on artist
Differentiation Music Genome Project
Low Differentiation
Purchasing experience
Easy to copy (Piracy)
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Situation Analysis ActionStrategy ConclusionAnalysis
Broad Competitive Landscape
Proven that consumers prefer Music Genome Project (recommendations from music experts) over community generated recommendations
Purple & GOLDC O N S U L T I N G
Situation Analysis ActionStrategy ConclusionAnalysis
Competitive Options
Users
Partners- Mobile
- Home Entertainment-Cars
New Revenue Stream Subscription
Revenue Ad RevenueMAXIMIZE
New Revenue Stream
Ad Partners
240.4 Million People Ages 14+*29% Stream Online Audiot
69.7 MillionPotential Listeners
20% of radio users listen to online radio – Go beyond the browser!
Purple & GOLDC O N S U L T I N G
Situation Analysis ActionStrategy ConclusionAnalysis
Pandora’s Current Business Model
Purple & GOLDC O N S U L T I N G
SituationAnalysis
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Strategy Options
Situation Analysis ActionStrategy ConclusionAnalysis
Purple & GOLDC O N S U L T I N G
Utilizing the Framework
Evaluating Key Factors:• Investment Costs• Revenue Generation• Increase in Brand Value• Legal Barriers• Feasability
Possible Strategies:• Pandora ‘Open Mic’• Pandora Video• Pandora International• Refine Current Offerings
Situation Analysis ActionStrategy ConclusionAnalysis
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Framework Analysis
Situation Analysis ActionStrategy ConclusionAnalysis
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Situation Analysis ActionStrategy ConclusionAnalysis
High
High
Payoff
Low
Low
Feasibility
GE Analysis
Open Mic
Pandora Intl
Pandora Video
Refinement
Purple & GOLDC O N S U L T I N G
AnalysisStrategy
• Pandora needs Long-Term Sustainable Growth Model Ad revenue and hopeful subscriptions not enough
• Short-Term Strategy – “Open Mic” Platform
• Long-Term Strategy– Refinement is sustainable – Record Label
• Product extension around valued artists
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Situation Analysis ActionStrategy ConclusionAnalysis
Overall Strategy
• Lower Time Limit– 20-40 hours a month
• 11.9% of users• 21% of hours• No direct revenue from
users• Annual Cost Savings =
$586,000
– First continuance payment at 20 hours
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Refinement
Situation Analysis ActionStrategy ConclusionAnalysis
• Watch Advertisement / Payment– Continuance fees:
• Watch extended ad• Pay continuance fee
– 20 hrs - watch 1-min commercial or pay $.25– 40 hrs - watch 2 1-min commercial or pay $.99
• Revenue from video advertisement is $90 per 1000 views
Purple & GOLDC O N S U L T I N G
Refinement
Situation Analysis ActionStrategy ConclusionAnalysis
• Online Battle of the Bands– Subscriber to enter
• 250,000 new subscriptions over 3 years = $9,000,000
– Registered to vote– $10 per song
• Projected participation:– Myspace music pages = 8 million– Year 1 = 200,000 songs submitted– Year 2 = 300,000 songs submitted– Year 3 = 500,000 songs submitted
– Available for listening/voting for one week
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Situation Analysis ActionStrategy ConclusionAnalysis
Open Mic
– Set-up
• Top ten songs listed on home page
• See all page
• Searchable by genre, region, artist
– Thumbs up, thumbs down
– Fits with Music Genome Project (Core Competency)
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Situation Analysis ActionStrategy ConclusionAnalysis
Open Mic– Incentive:
• Potential heard by 50 million listeners (1/6 of the US population)
• Your own channel• Weekly “Winner’s Spotlight”• Download the song• Become part of Pandora’s music
library
CROWD-SOURCING
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Joe Guitar18-34 aspiring musician
8M Myspace Music Artists
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Situation Analysis ActionStrategy ConclusionAnalysis
• Access to artists with established following (Open Mic)
• Ability to gauge where concerts would be on demand and what demographic to target
• Data to track most popular music trends • Established Distribution Network• Market Potential: Indie Market
– The global music market is approximately $40 to $48 billion
– 30% of the global music market belongs to indie labels ($12 to $16 billion)
– Internet sales in 2004 account for 6% of overall units sold
Online Record Label for Indie Artists
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Situation Analysis ActionStrategy ConclusionAnalysis
• Open Mic– There may be imitation, but
Pandora will have the first mover advantage
• Indie Online Record Label – Competitors may start their own
record label, but Pandora has a larger user base in the US, therefore more potential fans than the competition
Competitor Reactions
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Situation Analysis ActionStrategy ConclusionAnalysis
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StrategyAction
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Situation Analysis ActionStrategy ConclusionAnalysis
Financials
Revenue Assumptions
Purple & GOLDC O N S U L T I N G
Financials
Cost Assumptions
Situation Analysis ActionStrategy ConclusionAnalysis
Purple & GOLDC O N S U L T I N G
Financials
NPV = $11,195,609
Situation Analysis ActionStrategy ConclusionAnalysis
Purple & GOLDC O N S U L T I N G
Timeline
Purchase TV ads on MTV
Implement Video Ads
Launch ‘Open Mic’
2011 2012 2013
Performance Analysis of Initiatives
Evaluate Feasability of Online Record
Label
Situation Analysis ActionStrategy ConclusionAnalysis
Purchase Web Video Ads on Hulu
Web Still Ads on Facebook & MTV.com
Purchase Ad Banners at Concert Venues
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ActionConclusion
Personalized Radio
• Limited usage of “Next Track” option• No song search capability
Competitor Analysis
User Radio• Widespread use
• Social networking
• Complex user interface• Recommendations
requires software download• Radio based on genre
• Individual song analysis• Free to use online• User friendly interface• Portable option
Streaming Radio
• Brand-name recognition
• Portable
• Preset stations only• Subscription fee• Stations don’t play desired music
Digital Downloads
• Portable
• Song search capability
• Cost per individual song• Many alternatives• Only accessible for credit card holders
Type Advantages Disadvantages
500% growth in user base over 5 years increases revenue over tenfold.
Revenues
EBIT
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Year
Do
llars
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Financial Projections
Background | Market | Competition | Business Model | Financials | Exit Strategy
Expected Financials Revenue and EBIT
• Expanding user base• Increasing user
referrals• Growing subscription rates
Pandora begins to expend resources on advertising, resulting in:
2007 2008 2009 2010 2011 2012
Revenue by Source
Advertisements Subscriptions
2007 2008 2009 2010 2011 2012
Financial Calculations
2007 2008 2009 2010 2011 2012
Potential Listeners
69.7Million
79.8Million
91.4Million
104.6Million
119.8Million
137.2Million
Subscription Fee
$36 $36 $36 $36 $36 $36
Potential Market Value
$2.51 Billion
$2.87 Billion
$3.29 Billion
$3.76 Billion
$4.31 Billion
$4.94 Billion
Pandora’s Market Share
14.9% 19.9% 25.2% 32.4% 38.8% 44.4%
Subscription Rate
0.28% 1.03% 2.47% 4.32% 5.92% 5.99%
Subscription Revenue
$1.05Million
$5.88Million
$20.5Million
$52.7Million
$99.1Million
$131.4Million
Year User Acquisition Rate Per Day
2006 9,600
2007 15,000
2008 20,000
2009 25,000
2010 30,000
Revenue Calculations (all numbers are averages)• Benchmark of $14 million in 2007
• CPM $10-50 based on type of advertising package
• Users go on 2-3 times per week for 2-3 hours
2007 2008 2009 2010 2011 2012
Ad 92.5 75 50 30 20 15
Subscription 7.5 10 20 35 57 85
Percent of Overall Revenue for Each Source in a Given YearRevenue sources divert from advertisements to subscriptions. While ad
revenue continues to rise, its rate of growth
decreases as number of users increases.
Increase in user acquisition rate based on continuation of viral growth and implementation of
direct advertising and new products.
Revenue Calculations
Market Trend Calculations (Cont.)
37.56% Increase of Broadband users increase per year
14.5% of Internet users use Streaming Audio
39% of Internet users use Streaming Audio
x
37.56% Increase of Broadband users increase per year
All Competitors
Relationships Between Labels & Media
• Case Study– http://www.fabchannel.com/
• Online Concert Archive– Very Popular in Europe
• BUT record labels hurting– Hesitant to make any deals with strictly web
companies • Radio vs Online Radio Dichotomy • Cash is King!
Pandora and the iPhone
• Users are buying about a million songs a month now from these affiliate links on Pandora
• 20% are coming directly from Pandora’s iPhone app, which includes an easy link to open the iPhone’s iTunes app, and buy a track.
• Another feature driving affiliate sales is the bulk music purchase option. This allows you to bookmark songs on Pandora, and with one click buy them all on either iTunes or Amazon. – 10% of web users who are buying music through Pandora are
using this bulk buy feature
Pandora Projected Revenue
• At the end of 2009, Pandora reported its first profitable quarter and $50 million in annual revenue — mostly from ads and the rest from subscriptions and payments from iTunes and Amazon.com when people buy music. Revenue will probably be $100 million this year, said Ralph Schackart, a digital-media analyst at William Blair.
Pandora Playing Everywhere
• Devices made by LG, Samsung, Sony, Sanyo, Haier, Divx, Toshiba and Panasonic
• Biggest boost – embedding Pandora in automobiles
• Ford, Alpine and Pioneer are three companies that are going to be putting Pandora inside their cars and automobile music systems, respectively. – The service will piggy-back on 3G wireless connections
on the latest generation of cell phones. – Nearly 47 percent of radio listening is in the car
Imeem and Last.fm partner with 4 major record labels
• Imeem– http://mashable.com/2007/12/10/imeem-univers
al/• Last.fm
– http://mashable.com/2008/01/23/lastfm-free-music/
Fired Customers
• “Fired” Customers– 35% choose not to watch commercial or pay– >40 hr users are subscribers or pay– So, 20-40 users are most unprofitable– 35% of 20-40 hr users = 666,400 users– Only 4% of total users, but save royalty costs
Risks
• Watch ad v. pay– Users don’t pay or watch– Deters users from site
• Open Mic– Lack of participation in contest– Lack of new users/subscribers– Advertising costs exceed budget– Lack of awareness– Quality control