After more than a decade of struggle, during which it almost shut down several times, Pandora today launched a highly successful initial public offering that so far has seen shares rise from an opening of $16 to $24.20, and the day is far from over just yet. It now claims a market value of more than $3 billion. For a company that at one point couldn't even pay its employees for more than a year, it's a significant milestone, and a personal achievement for founder Tim Westergren, the company chief strategy officer.
But the IPO comes amidst tough questions about Pandora's financials-more than half of its revenue is spent on music licensing costs, a figure set to increase over the next few years. It's also hasn't yet collected enough in advertising to turn a profit, nor does it expect to for more than a year.
Fresh off ringing the opening bell this morning at the New York Stock Exchange, Westergren took a few moments to speak with Billboard about the significance of this milestone, the criticisms leveled against Pandora, and the company's plans for the future.
Billboard.biz So, what's new?
Tim Westergren: Just another day in the office. [laughs] No…it's a good day.
Can you tell me what's going through your mind right now, on the morning of your IPO, after the roller coaster years that Pandora has endured until now?
It's hard to process all at once. One of the greatest joys of this definitely, of all we've done, is seeing all these people who have been a part of it for so long and who have sacrificed a lot. It's a really nice milestone for them. I'm really proud of it. We're also very much focused ahead. We're pausing to appreciate it and enjoy it. But tomorrow morning we'll all be back at work.
And there'll be a much larger spotlight on you when you get there. I'm sure you have already felt the increased scrutiny on things like content payouts, revenues, profitability. How would you like to respond to those concerns?
We think we've built a business with a lot of potential and are very confident about that. We've had naysayers before. The company has benefitted from a really clear ability to focus. We for years have kept our eyes fixed on the horizon and not gotten distracted. That's not going to change. We're confident about the business that we have. We'll let our business do the talking.
So what is the grand plan to increase revenues?
I'm a musician, I believe in compensating artists. But I think we pay too much. Maybe more importantly, there's this dramatic lack of parity between different forms of radio. That's an issue that's got to be addressed in the coming years. The answer though is that we stick to our knitting -- do more of the same. This is a long-term opportunity. It's a big, big category and we're a small part of it now. We're just 3% of all radio. We have our eyes set years out.
Let's talk specifics. There are obviously multiple platforms on which you can access Pandora-mobile phones, the PC, cars-will you be setting different ad rates for those different points of access?
The anytime, anywhere part of Pandora is the cornerstone of how we get from here to where we're going. We've invested a lot in that do date in terms of developing for consumer electronics devices and cars. The key is to make this as easily available and as easy to use in as many places as radio has been historically. And you're right, advertising varies depending on the platform, and we'll make smart decisions on how to deliver that depending on the environment.
Can you break down how much of your advertising activity is local vs. national ads?
I can't talk about the specifics. I'll do that in a different setting. As we grow, as our footprint grows, our scale at a local level becomes increasingly meaningful, and that opens up that local opportunity. That is one of the central promises of Internet radio, as opposed to broadcast, because you know who you're talking to. Most of the campaigns on Pandora have some form of targeting, whether it's age, gender or geography. That's been an important part of what's attracted advertisers to Pandora.
What about non-traditional forms of advertising, like sponsored programs and such?
All of our buckets are growing. We intend to be a happy home for all sorts of different revenue streams on the advertising side. We're working on all of those fronts. And it's all connected to scale. Pandora's reach now is substantial enough to be meaningful in some of these bigger deals.
Any plans to increase the number of paying subscribers?
We don't see it changing meaningfully in terms of our mix. We think it'll grow, just the same way we grow the free side. And I think it's an important element to have. But we're not running a business where we try to push people to that. It has to happen organically. Fundamentally we look a t radio and say it's been free for decades, so we have to make this work principally as a free service.
When do you think you'll get to the point where you're paying 25% of revenues rather than a per-stream fee?
I wouldn't want to speculate. We think we have a good business and it has great potential. It will take some time.
So now that you're a public company, is Pandora's focus turning even more to monetizing the service?
This offering doesn't represent any change in terms of how we think about our business. We'll be doing the same thing tomorrow as we did yesterday. This isn't going to represent a change at all. We've been working very hard not just on growth, but on monetization for a long time. What happens is that we get benefits of scale. The larger we grow, the more effective we're going to be. Today doesn't change that.
What happens in 2015, when the current deal ends?
I don't have particular concerns about it. We're confident it'll be an economically rational outcome.
Why? It didn't go so well last time.
We weren't participants in the last rate setting. We will be at the next one. What I can say is that we'll lean into it.
You recently expanded into comedy content. What other areas of content are you considering adding to Pandora? Sports? Talk?
Historically, about 25% of radio has been non-music. So we certainly think about those things. Comedy came about because listeners wanted it. It was a direct response to what people were asking for, searching for Bill Cosby or Dane Cook. As we move forward, how we develop the product will be very connected to what we think listeners want.
Certainly there's an advantage to not having to pay as much in royalties for non-music content as well?
I think the principle driver is going to be listener demand. And we'll make the rest work.
What about expanding internationally?
Oh God. We absolutely have a vision of Pandora being global. The when, I can't even speculate. It's licensing. And it drives me crazy as a musiciain. It drives me crazy. Pandora ought to be available everywhere. It's good for artists and its good for listeners. I just hope that an economically rational licensing system will grow up. We're working on multiple fronts, but nothing specific to talk about now.
On demand services like Slacker, MOG and others also offer a personalized radio tier as well. How do you incorporate that into your competitive viewpoint?
We operate in the radio bucket and we view the on-demand bucket to be complimentary to what we do. Historically, radio has represented 80% of listening time for music, with 20% on-demand. Whether its iTunes or Rhapsody or MOG or Spotify, all those service I think are fundamentally complementary. That we view as all kinds of goodness. It doesn't compete directly with us. People who use Pandora ultimately use those services too.