The competitive landscape for Pandora is broadening with Apple (AAPL), which launched iTunes Radio last year, Sirius XM (SIRI), Google’s (GOOG) YouTube and Play Music All Access, Clear Channel’s (CCMO) iHeartRadio, music-streaming company Spotify, Microsoft’s (MSFT) Xbox Music, and newer entrants such as Beats Music.
Pandora’s (P) management acknowledged in its recent fourth quarter earnings call that the company is enjoying first-mover advantage because of its investments in the Pandora Everywhere strategy during the last several years. As part of the Pandora Everywhere strategy, the company is always looking at ways to expand its reach beyond the PC in order to make the service available to its users anytime and anywhere they want to listen to music. Users can access their personalized Pandora stations whether at home, in the office, on the move, or in the car.
The connected home is an important aspect of Pandora Everywhere strategy, which evolved with the launch of Pandora’s iPhone app in the summer of 2008. In the past few years, Pandora has seen a dramatic rise in listening via connected consumer electronics, especially mobile phones. Between December 2010 and December 2013, Pandora reported a 340% increase in unique monthly visitors and a 365% increase in total listening hours. As the company’s website states, “Ubiquity has been a part of Pandora’s long term strategy from the get-go. From your tablet to your home entertainment system to your Internet connected fridge or your in-car audio system, Pandora will be there.”
Incorporating the radio into the native environment of the car has remained a key focus for the company since announcing its first automotive brand partnership with Ford (F) in 2010. In January, Pandora created a new source of revenue by rolling out in-car advertising solutions and said the service is available on nine out of the ten best-selling passenger vehicles. Advertisers can reach car-bound audiences through 15-second and 30-second audio spots that will run across the 130 vehicle models that include a native Pandora integration along with more than 270 aftermarket automotive devices that feature the personalized radio service. Major brands such as BP, Ford, State Farm, and Taco Bell have signed up for the campaign. The company said more than 4 million users have activated Pandora through a native integration across the 23 major auto brands and eight aftermarket manufacturers on the company’s partner roster, representing an increase of 244% year-over-year.
Rival Apple is giving a stiff competition to satellite radio giant Sirius XM and Pandora as its latest iOS 7.1 has CarPlay, the company’s new automobile interface for iOS devices, that features are controlled with Apple’s digital assistant Siri voice control and the car’s touchscreen, knobs, and buttons. CarPlay gives drivers access to all of their music, podcasts, audiobooks, and iTunes Radio with easy navigation through listening choices from the car’s built-in controls or simply by asking Siri to pull up the track, Apple’s release stated. Apple said CarPlay also supports select third-party audio apps including Spotify and iHeartRadio but there was no mention of Pandora. CarPlay can also be used to make calls, use Maps, listen to music and access messages with just a word or a touch.
Last year, Pandora added product enhancements coupled with an improvement in playlist technology. It has added alarm clock and sleep timer features, created a station email recommendation system, and added an Android in-app subscription capability for Pandora One. Pandora redesigned its iPad app and also developed apps for the Microsoft’s (MSFT) Windows 8 phone, Android tablets. It also announced an integration with Facebook Timeline, and support for Google’s new Chromecast product, and Pandora TV. All these efforts are focused at increasing user engagement and expanding Pandora’s reach under the Pandora Everywhere strategy.
With the rapid progress of its mobile advertising efforts, Pandora removed the 40-hour-per-month limit on free mobile listening that was implemented in March last year, to manage increasing royalty costs. Moreover, Pandora integrated its advertising inventory into the leading radio media buying platforms, Mediaocean and STRATA with the help of Triton Digital, and is continuing to enhance the ability of radio advertisers to purchase media on these platforms.
The company has a registered user base and details such as age, gender, and zip code, and developed algorithms to recommend music based on user’s preferences. Pandora is now mining this user data and preferences for targeted advertising. It also launched a political ad-targeting system that can deconstruct users’ song choices to predict their preferred political party.
Local advertising is its fastest-growing ad segment, according to Pandora’s VP of Investor Relations Dominic Paschel. He said at a conference last year, “None of the other interactive players can tap this $15 billion pool of money. Pandora has essentially been ranked the number 1 radio property in most major local markets.”
The company expects to enhance user engagement, and believes targeted ads, programmatic and real-time bidding for advertisers, in-car advertising solutions, and local ad sales force are key elements of its strategy for expanded penetration of the radio advertising market.
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