Pandora Reaches 40 Million Active Users, Sees No Impact from On-Demand Services
Pandora Reaches 40 Million Active Users, Sees No Impact from On-Demand Services

Mobile Listening Outpacing Mobile Ads, Pandora CEO Says
-- Pandora CEO Joe Kennedy has suggested one of the analyst's fears about its business is coming true -- the company is not selling enough mobile ads.

"The sheer level of aggregate advertiser demand for mobile is limited," Kennedy told Bloomberg. "Pandora is one of the top five players in mobile, so we generate a lot of inventory and are ahead on where aggregate demand is for mobile advertising."

Why would investors worry? Because Pandora's pitch centers on its ability to do two things: grow its share of listener hours and match that growth with advertising. Mobile listening stands to be a significant part of the company's growth -- it already accounts for 60% of listening. Whether or not that ad inventory is sold, Pandora will incur a royalty obligation when it streams music. And because its content costs will rise through 2015, the company needs to increase the amount of revenue it generates per listener hour.

However, Kennedy painted a different, albeit fuzzier, picture in an interview with Bloomberg TV. "We're seeing very good growth in terms of local [advertising] and good growth in terms of the radio audio advertising that we do, and expect to see significant growth in that area going forward."

The company's stock dropped 4.1% to $17.99 within the first 15 minutes of trading Friday and closed the day down 3.89% to $18.03.

Analysts may be worried about Pandora's ability to serve ads, but this factor is not priced into the stock. With a market value of $2.87 billion, investors have made the implicit argument that Pandora will have no problem selling enough advertising to generate ample free cash in the coming years. For that to happen, growth in ad revenue must outpace growth in listening hours. If not, the company's revenue will be increasingly swallowed by content acquisition costs.

Earbits CEO Clarifies Royalty Waiver Statement
-- My Business Matters post Wednesday included a look at the business model of Internet radio startup Earbits and its new white-label service that is powering a radio station at It included a claim by the CEO Joey Flores that Earbits has a royalty waiver from SoundExchange.

Flores later clarified his statement by explaining that Earbits privately negotiates licenses with rights holders in a fashion similar to other music services.

"When an artist or label uploads music to Bandcamp, Reverbnation or Myspace, they are authorizing those companies' respective licensing agreements, most of whom request certain royalty rates or waivers," he wrote in an e-mail. "Our standard terms and conditions, which are very similar, grant us a license to use the copyrighted works in order to perform our marketing services, and they include waivers for certain types of royalties, namely the performance royalties collected by SoundExchange."

SoundExchange noted at its website Thursday that it is not in the business of giving waivers. "SoundExchange doesn't grant 'waivers' of anyone's obligation to pay royalties: we administer the statutory license provided as a part of federal law." But SoundExchange did note that individual rights owners are free to grant royalty waivers.

Two industry sources tells that Earbits has been getting some waivers from people with various roles at record labels -- such as A&R and publicity -- and not people with the authority to sign this type of contract. But Flores emphasizes the company is working with labels that understand the contracts and the company's business model.

"We do understand the importance of this issue to labels, artists and the industry."

Rdio Surpasses 10 Million Songs
-- Let's take a Spotify break for a second and mention that music subscription service Rdio has surpassed 10 million songs in its catalog. Mashable puts it in perspective for us: "For comparison's sake: Spotify has 15 million songs, MOG has 11 million, Rhapsody 12 has million and Slacker Radio boasts more than 8 million."

Spotifty's Plan To Concur America
-- OK, back to Spotify. Here's an item that shows how the company plans to get its hook into Americans. Here's Daniel Ek at Fortune's Brainstorm Tech conference:

"[W]e do know that if you've invested in building five playlists, you want to keep going with Spotify, you don't want to leave the service. So we're building tools now to get people to engage more and to build libraries faster."

The result is a better conversion rate (free to paid), more advertising dollars (which doesn't make sense if people are moving from ad-supported to paid) and more money for rights holders, he explains. If you're wondering why U.S. users get six months of unlimited streaming in Spotify Free, this is why. The company wants to get its hooks into consumers, let them take it for a test drive and not want to face limited streaming hours when it's over.

A few other tidbits Ek mentions: the company has 380 people on staff, 25 of them in the New York-based U.S. office; and the company has found people don't like to share the music of Lady Gaga and Britney Spears with their friends (apparently there's too much shame in those guilty pleasures).

Indie Filmmaker Talks Piracy With Chris Castle
-- A filmmaker's point of view on piracy comes from Jason Stall in a podcast interview with attorney/blogger Chris Castle. Stall made the documentary "Blood Into Water" about the Arizona winemaking operation of Tool frontman Maynard James Keenan.

"When you can no longer present on the front end a business model that has a potential as a return for anybody, it becomes pretty hard to find the investors, so that's the money side of it. Then let's take the creative side. If you can't raise the money you did before, quality is going to go down, quantity is going to go down and you've crushed the creative process."

Stall says he did his best to prevent piracy but an illegal copy made it online before the theatrical release was over. Once the DVD shipped, one site logged "23,000 downloads within a very short period of time," he says. Eventually the movie made it to Netflix, where it can now be streamed legally and affordably (it's a good movie and definitely worth checking out if you're a subscriber).
(MPAA blog)