After Pandora filed for an IPO in February, attention was drawn to a business model some felt was unsustainable. People tended to focus on two facts: roughly half the company's revenue goes toward royalties; and its royalty rate will increase through 2015.
But Pandora's now-public financial statements show the model is indeed working and hint that the increase in its royalty rate can be overcome. How? Well, bespoke, multi-platform advertising campaigns by deep-pocketed multinational corporations would be a great start.
Enter Pandora's new Toyota campaign. On Friday Pandora launched the Toyota "Legends & Icons" campaign across all its platforms. Pandora says the campaign, which will run through the beginning of 2013, is its biggest yet.
"Legends & Icons" will feature exclusive content from unnamed "internationally acclaimed and award-winning musicians," including video and artist-curated mixtape stations. The initial part of the campaign will place ads for the Toyota Highlander on Pandora's Top 40 station. Each month will see a new pairing of station and vehicle.
For a company so active in the automobile market, a Toyota partnership makes sense. Toyota's Entune connects the user's mobile phone to a number of apps that reside within the in-dash system. So by downloading the Entune app to your iPhone, for example, you can access your Pandora account on the car's touch screen display.
Pandora will need these types of premium campaigns. Its webcasting royalty rate is set to increase over the next five years -- 37% for its ad-supported stream royalty and 47% for the rate paid on streams by paying subscribers. (Only 14% of its revenue comes from paying subscribers, so the majority of its royalty obligations will come from the lower of the two rates.)
Put simply, the company will need more revenue. As Pandora scales up -- aggressively pursuing automobiles, expanding into new markets -- listening hours and related expenses will increase, too. As that happens, it will need more campaigns like "Legends & Icons." But for now this campaign is a good start.