Pandora Music

Pandora Music
Pandora Radio was launched in 2000 under the name of Savage Beast Technologies. The idea was essentially the same as it has always been: to offer users a personalized listening experience with music that was in line with their tastes and preferences. After running into funding issues, the company re-launched itself in 2004 as an ad-based free streaming music radio site that still used the customized radio model to attract listeners. The idea clicked with listeners and by 2011, the company went public on the New York Stock Exchange. By 2013, it had 200 million users, about 70 million of whom were active monthly listeners. Pandora attracted listeners via its free ad-supported customized content but also gave listeners the option of paying a fee to listen without commercial interruptions. This paper will discuss how Pandora used the Internet to become a disruptive innovator in the music industry by offering consumers their own tailor-made radio stations.
As Steve Jones notes, “whereas before the Internet, music was marketed and promoted to an audience in a closed loop primarily between record companies and radio stations, by the 2000s there was clearly no longer any such loop” (441). The breaking of this loop, thanks to the Internet, allowed Pandora to become a game changer in terms of the way the music industry had to think about music and the utility of music in the Digital Era—the Information Age—the Age of Social Media. Digital content was screaming across the World Wide Web, digital files being shared by music lovers on social media platforms, and now Pandora had come along to revolutionize that concept of music distribution. Pandora’s disruptive innovation challenged the once “secure system for payments for performances” (Jones 441). Now that system had to be redesigned, with new deals inked to secure for artists the just rewards of their contributions. Performance rights organizations had overseen that aspect of the industry in the past—Broadcast Music, Inc. (BMI), the American Society of Composers and Publishers (ASCAP) and so on—but when the Internet arrived to create a new venue for file sharing and streaming, none of these organizations had “a mechanism for tracking streaming music or other online performances and collecting royalties,”—and the kicker was that those who were offering music online were under no legal obligation to pay royalties to the artists (Jones 441). In the early days of the 1990s, the Internet was still the Wild West frontier in the early days: the problem of monetizing businesses and making sure content was not stolen or Intellectual Property ripped off was now something that had to be solved. The Digital Performance in Sound Recordings Act was passed in 1995 and the Digital Millennium Copyright Act was passed in 1998.
However, the power of the music industry was now in the hands of the consumer. New media—i.e., the Internet—made the consumer the new arbiter of what would be passable and what would not. The consumer would get to pick and choose which new star would shine and which would not. The consumer was at the controls—and social media was the method by which those controls would be used. Indie stars like Macklemore and Ryan Lewis would catapult to the top of the charts virtually outside the industry system—thanks to the power of the music streaming services.
Pandora allowed the way people came to know music to be revamped. Instead of having to rely on the industry’s radio systems to get content delivered, users could modify their own accounts and set their tastes, enjoy hearing new music in the genre of their preference and come to know new artists they had never heard before. In this way, Pandora was a truly disruptive company. Christensen, Raynor and McDonald describe disruption as a “process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses.” What Pandora was able to achieve was thanks to the Internet and its democratizing qualities. As Bhargava and Klat have pointed out, “the growth of digital content, and especially paid digital content, is driving the growth of the creative sectors” (8) all over the world. But really the Internet has only been part of the story. The other part has been the revolutionary, innovative technology to come along that could connect people with platforms like Pandora over the Internet through mobile devices—the iPhone, the Android, the tablet and iPad and so on. The ability for people to connect to the World Wide Web while being on the go was the other development that gave Pandora its ability to truly disrupt the music industry and change the way people think of getting access to music. Without iPhones in everyone’s pocket, the Internet had less utility: one would have to be plugged in the desktop computer. Apple changed all that by essentially giving everyone a small, portable computer that doubled as a phone and acted as a camera too—it was the all-purpose digital device. One could preserve one’s memories for all time by taking a picture, instantly uploading it to a social media site and linking a song to go along with it. One could create a digital diary of one’s days and provide the soundtrack to one’s own life, and Pandora was there to help make it possible.
As Chris Anderson notes, the first key to disruption is to “make everything available”—and that is what Pandora did for music lovers. The second key is to give it away for free—and Pandora did that, too. Pandora provided free, unlimited streaming of music to users—all tailored and customized to fit he users’ tastes. Pandora did not even require a veritable marketing strategy: word of mouth advertising basically did the trick for the platform. All Pandora had to do was convert its users’ data into portfolios that it could use to attract advertisers and start collecting ad revenue. Currently, SiriusXM is said to be thinking of buying Pandora for $3.5 billion (Borney). That is the extent to which Pandora has been able to succeed in disrupting the music industry: “The deal comes as the radio industry grapples with digital competition in the form of streaming music apps and podcasts. SiriusXM and Pandora have competed for business” (Borney). Pandora’s business model has never been quite robust, as the problem of actually brining in profits has created a challenge for it in the past—so the extent to which it can truly be said to be disruptive could be disputed.
After all, Christensen et al. state that “disrupters tend to focus on getting the business model, rather than merely the product, just right. When they succeed, their movement from the fringe (the low end of the market or a new market) to the mainstream erodes first the incumbents’ market share and then their profitability. This process can take time, and incumbents can get quite creative in the defense of their established franchises.” Yet clearly the company has done something right to attract the 3.5 billion USD offer from SiriusXM. As of the early 2018, the company was still losing money every quarter, burning through nearly $50 million in operating costs after all was said and done (Kesarios). Yet, it was able to challenge the other players in the industry in terms of drawing away market share. So even if it was not making money, Pandora was still gaining value, offering investors an exit via a potential buyout. That is what has made Pandora attractive to investors all this time. Indeed, on the news of the buyout, Pandora’s stock climbed nearly 10% in one morning. That shows the power of a disruptive service—even one that lacks a sufficient business model for profitability. Just being a sustainable threat to the music industry made it valuable enough to hold on to as far as investors were concerned.
Whether Sirius is making a smart move in acquiring Pandora remains to be seen. The share price of SiriusXM fell more than 2% on the news indicating that investors were not thrilled with the acquisition. Part of their skepticism could come from the fact that Pandora has been on the ropes in recent years, with escalating royalty fees and an inability to scale profitably being the main obstacles to its business model. Pandora’s biggest appeal was the fact that it was free to users. Yes, it had subscription plans—but those were never that popular with users. Other streaming platforms required a fee, but Pandora was the one exception. That drew listeners but not necessarily profits. Thus, for some, it could not really be called a majorly disruptive player in the marketplace. However, with the offer from Sirius it shows that what may not have been disruptive to some was certainly seen as such by others.
In conclusion, the Internet helped to change the way music was accessed by individuals in the Digital Age. Pandora, the free music streaming platform, capitalized on the new technology and used it to challenge the music industry’s hold over who heard what, when and where. Pandora gave users the option of something new—a radio station that the listener could create. The listener would identify the types of music he wanted to hear on the station and then sit back and let the music come. It was as simple as that. Pandora attracted 200 million users within a decade of its launch and now it has attracted a buyout offer of $3.5 billion. That, to be sure, sounds like the work of a disruptive innovator.
Works Cited
Anderson, Chris. The Long Tail. Change This.
Bhargava, Jayant and Alice Klat. Content democratization: How the Internet is fueling
the growth of creative economies. PWC, 2017.
Borney, Nathan. “SiriusXM to buy Pandora streaming radio service for $3.5 billion.”
USAToday, 2018. https://www.usatoday.com/story/money/2018/09/24/sirius-xm-radio-pandora-media-acquisition/1408114002/
Christensen, Clayton, Michael Raynor and Rory McDonald. “What is Disruptive
Innovation?” Harvard Business Review, 2015. https://hbr.org/2015/12/what-is-disruptive-innovation
Jones, Steve. “Music and the Internet.” The Handbook of Internet Studies, ed. by Mia
Consalvo and Charles Ess. Blackwell Publishing Ltd, 2011.
Kesarios, George. Pandora's Profitability Problems Remain The Same.” Seeking Alpha,
2018. https://seekingalpha.com/article/4149720-pandoras-profitability-problems-remain