Pandora's Acquisition of Ticketfly Is Expensive, Groundbreaking and Full of Opportunity

Pandora at SXSW 2015.
Robin Marchant/Getty Images for PANDORA Media

General view of Pandora at SXSW 2015.

Connecting listeners with live events -- and facilitating ticket purchases -- changes the game for fans, artists and streaming services.

Pandora's acquisition of ticketing company Ticketfly, announced today, marks a seismic shift in the way digital music companies serve artists. While artists and labels continue to publicly debate streaming royalties and harbor great uncertainty about their future, the leading Internet radio service made a move that will strengthen the link between listening and live events, and provide a potential financial boon for artists. Rights holders will still push for higher royalties, but artists will push for tools that help their careers in other ways.

This acquisition is the centerpiece of the Brian McAndrews era. The CEO arrived two years ago to find a bitter relationship with the creative community. The company had, the year prior, sought to ease its royalty burden through its support of the Internet Radio Freedom Act, legislation which drew battle lines between digital radio services on one side and rights owners and artists on the other. McAdrews quickly sought to improve the company's relationships with creators, building an artist relations team and creating a portal for artists called Artist Marketing Platform, or AMP. Last year's deal with independent rights organization Merlin was the first time Pandora negotiated royalty rates directly with record labels. A similar deal with classical music label Naxos followed.

"When I joined, I felt like we were doing a really great job of using our data and building our business for listeners, and we were growing our advertising business significantly and investing there," McAndrews tells Billboard. "Frankly, we had this great platform, we were doing great things for artists in that we were playing 130,000 artists a month and a great discovery platform, but I firmly believed there was more we could do with this platform to help music makers."

Ticketfly gels seamlessly with AMP, which gives artists information on their songs' streaming activity and, more importantly, delivers audio messages to their most active listeners. Currently in an early stage and available to few artists, audio messages are being used to target fans in particular markets and deliver links to ticket pre-sales. Electronic duo Odesza was one of the first to target fans in tour markets. Although not a mainstream act, Odesza used targeted audio messages to quickly sell through its allotment of 25,000 tickets through the Pandora platform. 

Now these event-based innovations are tied together seamlessly. Before the acquisition, Pandora's audio messages would direct listeners to a third-party ticketing site. Now the discovery loop will be closed, in many instances. An artist can use the Pandora platform to reach fans in targeted markets and sell concert tickets within the same ecosystem. 

This kind of seamless experience will make a big difference to the touring industry, WME music head Marc Geiger told Billboard earlier this year. "Nobody has really gotten the tour date market, and I'm really hopeful that at some point that gets integrated as all these services get to scale and people are using them constantly, either when they're listening to a playlist, or they click on an artist, or search for an artist, and where they're playing within 'x' miles comes up to the user. That would make a big difference."

Here Ticketfly seems like a natural resource for thousands of Pandora artists. While Ticketmaster has the larger tours in the larger venues, Ticketfly clients are mostly small to mid-sized venues that book small and mid-tier artists. While the average American goes to perhaps two concerts each year, the more active Pandora listeners are likely to attend far more. Ticketfly CEO Andrew Dreskin calls this "the middle market" and "the most vibrant part of the music ecosystem. These are the next generation acts. These are your rabid fans that go to shows day in and day out."

Artists stand to win big, as they seek ways to leverage streaming services in order to reach fans new and old. They will eventually be able to tap into Pandora's 80 million monthly listeners, nearly all of them in the United States, creating a bridge between listening -- which currently results in a 0.14-cents royalty per ad-supported stream -- and the live events that can account for the majority of an artist's revenue. Whereas most promotional channels are expensive, Pandora provides a direct path, free of charge, to the fans most likely to buy concert tickets. (The topic of how streaming influences touring will be discussed in a panel at the Billboard Touring Conference on November 18. Pandora executive Lars Murray will be joined by Randy Reed, manager of Odesza, as well as executives from Live Nation, Spotify, Eventbrite and Crush Music.) 

The $450 million deal was an expensive bet. Ticketfly has publicly stated it generated $500 million in gross ticket sales in 2014. Its revenue from ticket sales, which it makes through the fees it generates from clients, was about $35 million in 2014 and about $55 million in the first half of 2015 , according to a report by CRT analyst Robert Coolbrith. That puts Ticketfly's enterprise value at 8 times annual sales -- a high ratio, but not unheard of for a fast-growing technology company.

Pandora didn't have many options. If it wanted a ticketing company to add strength to its platform, Ticketfly was one of few of plausible candidates. Ticketmaster is out of reach. AXS is owned by promoter AEG. Paylogic is owned by SFX, which is looking to sell non-core assets, but is focused on Europe, not the United States. Paciolan skews toward sporting events rather than music events. Among the candidates, Ticketfly had the best combination of growth, clients and technology, and it was a privately owned startup whose investors were undoubtedly seeking an exit at the right price. 

For this acquisition to make sense financially for Pandora, the company needs to generate continued revenue growth from Ticketfly, and the capture of synergies between the two. McAndrews believes "the synergies are enormous." He sees Ticketfly not only as a new revenue stream and an enhancement for listeners but also a means to generate sponsorship revenue that has gone untapped by Ticketfly. "Our core constituency at Pandora are listeners, advertisers and music makers, and we see benefits to all three groups in this combination."

Regardless of the financial details, the acquisition puts pressure on other music streaming services to better serve artists. Spotify offers brands the ability to serve targeted advertisements and "VIP experiences," but it doesn't integrate ticketing into its platform. Apple Music's Connect feature is a social media tool where artists can link to the iTunes Music Store, but does little to drive ticket sales. Deezer, Rdio, Google Music, iHeartRadio and Slacker all lack Pandora's ability to connect artists with their fans. It's unlikely many them will add such a feature. Now that Pandora has taken Ticketfly away from its competitors, there is one less partnership or acquisition to be made.