Pandora's Executive Shakeup: What Happened Behind the Scenes
Two days ago, the music industry woke up to a morning surprise: Pandora co-founder Tim Westergren was returning to the role of CEO, and Brian McAndrews was out. McAndrews, a polymath executive with deep advertising experience -- who currently serves on the boards of a very long list of high-profile companies including The New York Times and GrubHub -- had led the company through an extended period of dramatic change as its chairman, president and CEO since taking over in September, 2013. Clearly, McAndrews was overseeing a clear strategy under a broad mandate and -- although the company's stock had fallen from a three-month high of $13.41 to $9.52 at press time -- all outward appearances point to it having been executed competently.
So what happened? While seemingly abrupt, one source says McAndrews' ouster was not a surprise, and insiders point to several reasons for it, including a failed sale, executive infighting and a lack of progress in expanding the company's core business.
McAndrews had overseen the company's detente with the music industry after years of acrimony under former CEO Joe Kennedy. During Kennedy's tenure, the company aggressively pursued its ends, at odds with publishers and collection societies over streaming rates, and the governmental regulations around them. But McAndrews smoothed relations and led Pandora through bold acquisitions, including TicketFly and Next Big Sound last year, as well as its purchase of some constituent parts of defunct streaming service Rdio in order to build its own on-demand tier and, critically, expand internationally.
"Usually, there is a management change when something fails," says one industry insider. "If that’s the case here, the question becomes: 'What failed?' If it were [being sold], you would let the buyer take the write-off on McAndrews contract and the other departing executives. Since Pandora is taking on the expense, maybe the failed strategy was the sale." Billboard hears from multiple sources that a sale, rumors of which began percolating in February, has been abandoned.
Pandora was, according to sources, shopped to both Google and Yahoo (among others), but talks never went beyond tire-kicking and speculation. Google is said to have taken a serious look at the company -- but never made an offer -- while Yahoo went a step further before being stopped by its board, one industry financial executive tells Billboard.
Still others suggest that McAndrews and Mike Herring -- then its CFO, and now its president as well -- didn’t get along, and that "the board lost confidence in Brian," says one music digital services executive. A person close to the situation at Pandora downplayed any friction in the executive ranks, however. A major factor is said to be McAndrews' relationship with the traditional music business. Although he helped Pandora enter a new age of warm industry relationships that resulted in direct deals with publishers and record labels, McAndrews never fit into the insular world of music industry executives.
Another issue is said to have been the lack of progress in moving Pandora's core business, custom digital radio and the advertising around it, abroad. One source familiar with the negotiations says that one major label was turned off by the direct deal terms sought by Pandora. Sources tell Billboard that McAndrews himself wasn’t the issue. "We don’t care who we do a deal with, as long as the terms are right," says one major label executive. "They seem to want to do direct deals with the labels, but also seemed to be trapped by their dependence on the CRB rate and an unwillingness to truly embrace the market rate concept that direct deals require." That negotiations, which generally begin with a low-high dance, between experienced executives would lead to the ouster of such an experienced executive remains surprising.
Any expansion of free, ad-supported listening is seen as a worry by the majors, who want subscriptions to overtake ad-supported listening by fans. However, Pandora's listenership -- which recent metrics suggest is approaching saturation in the U.S. -- is primarily casual, and monetizing listeners who have little interest in the gargantuan catalogs of services like Spotify would seem to be making lemonade out of thin air. SoundCloud just pulled a similar feat yesterday, monetizing the millions of derivative works on its platform.
At the very least, the change decentralizes power at the top of Pandora. McAndrews was chairman, CEO and president. Now, with the new management structure, independent board member James Feuille is chairman, while founder Westergren is CEO and Herring is president.
With the surprising shakeup of one of digital music's guiding lights, the question emerges: Which Pandora will the industry see going forward? Signs seem to point to a warmer relationship with rights-holders, especially if the company plans to follow through on its international expansion. Industry executives are, of course, hoping for the best. Prior to the management change, says one executive, "they gave off every indication of a company in desperation."