SIRI Sirius XM Holdings Inc

By Anne Steele 

In the face of stiff competition in a crowded music streaming landscape, Pandora Media Inc. is fighting for listening time.

The internet-radio company, popular for its free personalized music stations, has struggled as users have migrated to services like Spotify AB and Apple Music that allow listeners to play individual songs on demand. And ad dollars have followed.

Pandora's stock, once a Wall Street darling, has flagged, though the company remains the largest streaming-music provider in the U.S. Last year, a $480 million investment from Sirius XM Holdings Inc. was followed by a management shake-up that brought Sling TV's founding chief executive, Roger Lynch, to the helm. Mr. Lynch is now leading Pandora's efforts to woo back listeners and advertisers.

Hedging its bets on the future of music listening, Pandora last March launched its own on-demand subscription service, Pandora Premium. In December, it rolled out a feature allowing users of its ad-supported radio tier to access about 30 minutes of free on-demand listening in exchange for watching 15-second ads.

But Pandora also sees a future for its core ad-supported radio and is doubling down on the technology that enabled it to provide personalized music. Founded on a technology called the Music Genome Project, a combination of humans and machines that helped it analyze music and recommend songs for each listener, Pandora has collected stores of data on music and its users.

Now Pandora is using its data to help advertisers better target ads. It is also trying to apply similar analysis and algorithms to nonmusic content such as podcasts, to be able to make the same type of personalized recommendations.

Mr. Lynch discussed Pandora's data innovations, the perfect ad length and the future of listening to music. Edited excerpts follow.

Updating the service

WSJ: Pandora has been losing users. Why do you think that is, and what is the most important thing for reversing it?

MR. LYNCH: It's a more competitive market than it used to be, which means you need to make sure you're always innovating. One of the main reasons people cite for why they might stop listening to Pandora is the lack of the ability to listen to a song on demand. We launched the premium product, which is all on demand, in April of last year, but also in December we launched a new innovation bringing on demand into our ad-supported product.

WSJ: Where are you looking for new subscribers, and how are you thinking about drawing them in to Pandora?

MR. LYNCH: We have a three-tier model. We have our ad-supported listeners. Then we have two subscription tiers: people who want an ad-free version of Pandora for $5 a month or full on-demand service for $10 a month. That's where we decided to capture the growth that's happening in premium subscription services, while at the same time going after people who will not pay.

WSJ: You have tons of users and lots of years of listening data. Are there any untapped or undertapped areas where you think you can use data to make the listening or ad experience better?

MR. LYNCH: An opportunity for us is to use it better in our marketing. Today's marketing is less about big brand campaigns and much more about using data to create a unique connection with an individual. By unique, I mean targeted for that individual from whatever data we know about you, and that's an opportunity Pandora has underexploited because we have strength in data.

WSJ: Can you give an example of what they might look like?

MR. LYNCH: We can serve hyperpersonalized audio ads to listeners, allowing advertisers to create thousands of versions of an audio ad easily and efficiently. For example, listeners in San Diego might hear something like, "Good morning San Diego, it's going to be hot today. Come grab your iced coffee at (insert coffee shop)." A New York listener might get something like, "Good morning New York, it's cold out. Start your day with a warm latte from (insert coffee shop)."

WSJ: What about users who don't want so many ads?

MR. LYNCH: Much like how we know what song is likely to be positively received by a listener, we have a pretty good idea what kind of ad they will be most receptive to, and when best to serve an ad or not. We won't serve an ad if a listener has just thumbed-down a song. We're also able to identify if a person responds better to ads during particular times of day or days of the week, if they prefer longer but fewer ads or shorter but more frequent ones.

We personalize advertising to them in the same way we personalize their music feed.

WSJ: Can you expand on what the Music Genome Project for podcasts is?

MR. LYNCH: Over the past 12 years, Pandora has been analyzing listener behavior to create a comprehensive view of the different characteristics of users on our platform based on historical usage. We understand the appetite for varieties of genres and audio content, as well as the propensity to listen to Pandora during certain times of day, or points in time -- during a morning commute, for example. Now we are developing an algorithm that allows us to predict what types of podcasts (sports, news, fashion, etc.) will resonate with a particular user.

We'll be able to get as specific as the content of the episode, and then match this information with listener preferences to make recommendations.

The future of ads

WSJ: What are you looking at for listening in the car?

MR. LYNCH: We're in 200 car models already, and then you have the growth of Android Auto and Apple CarPlay. That brings Pandora to many more cars. So I see that as a big opportunity. The challenge is, you have to make it as easy as pushing an "on" button. If you think about how easy FM radio is today, I just get in and push the button, and it plays. We have to make streaming audio as easy as that, and one of the ways to do that can be through voice navigation. Obviously, if you're driving a car, you're otherwise engaged, and fooling around with any type of physical interface is more challenging. So, if you can use voice to navigate, you're going to be more in the mode of, let it take over and play for me the things I like to listen to.

WSJ: How do you see the role of ad-supported music within the broader music-listening ecosystem that we have?

MR. LYNCH: We do know that in any market, you have to segment the market. There are people who will pay for a premium experience, people who won't pay and people who will pay for something in between. So it's very important that Pandora has the spectrum all the way from the ad-supported up to the premium service, and I don't see that changing.

Even though there's growth with subscriptions, you are going to still see ad-supported audio continuing to be large, maybe the largest, in terms of listeners at least across the U.S.

Ms. Steele is a Wall Street Journal reporter in Los Angeles. She can be reached at anne.steele@wsj.com.

(END) Dow Jones Newswires

February 19, 2018 22:16 ET (03:16 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.