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Why Pandora Values Partnerships

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Lowering the cost of customer acquisition

Pandora (P) noted during its second-quarter earnings call on that July 31 that it would continue to partner with other companies, saying doing so helps it make its brand known to a larger universe of customers. At the same time, partnerships also augment Pandora’s direct marketing efforts. 

Generally, Pandora views mixing partnerships with direct marketing efforts as a way to lower its customer acquisition costs. Pandora’s marketing expenses dropped to $125.4 million in the second quarter from $145.9 million a year ago. The company has recently struck multiple partnership deals, including with AT&T (T), Snap (SNAP), and T-Mobile (TMUS).

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Acquiring subscribers with higher lifetime value

The deal with AT&T has made Pandora’s premium service a bundled entertainment option for AT&T unlimited customers. Pandora expects the deal with AT&T to help it acquire subscribers with a higher lifetime value since bundled offerings tend to have a lower customer defection rate or churn.

The partnership with T-Mobile involves providing special Pandora service offers to the customers of the mobile operator. Pandora sees the arrangement with T-Mobile as helping it drive subscription trials at lower costs.

Pandora partnered with Snap to allow Snapchat users to easily share music across the messaging app. Snapchat is used by 188 million people worldwide daily on average. Pandora hopes the partnership with Snapchat could help it drive engagement with younger customers and subsequently drive growth for its subscription business.

Pandora has 6.0 million paying customers

Pandora finished the second quarter with more than 6.0 million paying customers, indicating that it gained more than 350,000 premium subscribers in that period. However, Pandora still has a long way to go to catch up to the competition. Apple Music has more than 40 million paying customers, while Spotify (SPOT) has 83 million paying customers.

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