It’s because of companies like Pandora that many in the industry are referring to this past summer as the “Summer of Streaming” -- and not necessarily in a positive light.
Within the span of a single month (namely June 2017), Pandora saw its original founder and CEO Tim Westergren, chief marketing officer Nick Bartle and president Mike Herring leave the company, sold its “Eventbrite-killer” acquisition of Ticketfly to Eventbrite and accepted a $480 million investment from SiriusXM after months of searching for a buyer.
Roger Lynch, the former chief of video streaming service Sling TV, joined Pandora on Sep. 18 to replace Westergren and Herring as CEO and president and was immediately faced with the ultimate challenge of revitalizing a sinking ship.
After six weeks on the job, Lynch came forth to articulate his wider vision for Pandora during the company’s Q3 earnings call on Thursday. While last quarter’s financials paint a far-from-stable picture and reflect much of the summer’s tumult, they also point to a handful of opportunities for how Pandora could continue to grow and differentiate itself in an increasingly crowded and competitive streaming landscape.
Pandora’s revenue excluding ticketing was $360.2 million in Q3 2017, an increase of 9 percent year-over-year. Yet, the loss of revenue from the Ticketfly sale, as well as the shutdown of offerings in Australia and New Zealand in July 2017, led the company to lower 2017 revenue estimates to a range of $1.45 billion to $1.5 billion, versus a previously expected $1.5 to $1.65 billion.
In Q2 2017, when it was still under Westergren’s wing, Pandora had declared to investors that it would prioritize growth and retention of active users over pushing for conversion to paid subscriptions. Yet, the service’s active user base declined once again in Q3 2017 -- dipping by 6 percent year-over-year to 73.7 million active users, versus 77.9 million in Q3 2016.
Execs on the earnings call attributed the dip to short-term market conditions and natural disasters in Texas and Florida, but there is also a wider trend here: Q3 2017 is the sixth out of the last seven quarters that Pandora reported a decline in active listeners. The 73.7 million figure for Q3 excludes the 1.1 million listeners that Pandora left behind in Australia and New Zealand -- but including those users in the results would still indicate a decline.
In the same vein, while average monthly listening time on Pandora hit 23 hours in Q3 2017, its second-highest ever for a single quarter, total listener hours on the service also declined by 5 percent YOY, from 5.4 billion in Q3 2016 to 5.15 billion in Q3 2017.
On the other hand, even if Pandora isn’t aggressively chasing higher conversion its paid service, its subscription business saw substantial improvements last quarter. Total subscription revenue across Pandora Plus and Pandora Premium swelled by 51 percent YOY to $84.4 million in Q3 2017, while total paid subscribers increased 29 percent YOY to 5.19 million (over 1 million of which are on the Premium service, a benchmark achieved just last month).
Perhaps surprisingly, the rise in Pandora’s subscription business has established the service’s leadership in the mobile app market: a report by Sensor Tower revealed that Pandora was ranked first in U.S. revenue from the iOS App Store and Google Play in Q3 2017, beating Netflix, HBO Now and Tinder to the punch. Lynch pointed out during yesterday’s earnings call that Pandora remains the only music streaming service to offer multiple price tiers with varied features, beyond the standard $9.99/month or the additional “hi-fi” layer that Tidal popularized and Spotify is eyeing.
Despite this subscriber growth, one way Lynch wants to stay consistent with Westergren’s vision is his determination to build a superior ad-supported experience. For Lynch, this means supporting adjacent forms of content beyond music -- including spoken word and podcasts, which Pandora first added to its roster in 2013 and 2015, respectively -- and making deeper investments in interactive ad tech that allows for smarter performance and partner marketing.
Pandora’s ad revenue was $275.7 million in Q3 2017, a 1 percent increase year-over-year -- but this growth was the result of an increase in the average unit price per ad offsetting a decrease in the total number of ads sold. In contrast, in Q2 2017, Pandora managed to sell more ads, for more money, to more advertisers. During yesterday’s earnings call, Lynch admitted that improving ad tech was also a matter of streamlining internal processes and “removing inefficiencies in the very manual way the team currently needs to work to fulfill orders and requests.”
As with any other streaming service, Pandora also sees key growth opportunities in new forms of distribution. In particular, the service’s listening on voice-activated devices increased by 300 percent year-over-year and is already working with companies like Sonos to ensure its continued presence in this increasingly crowded world of smart devices. Automotive platforms, on which Pandora consumption grew by 30 percent year-over-year, will also be a key partnership focus.
The higher-level elephant in the room, however, is that Pandora, and any other streaming service for that matter, has yet to report a profitable quarter. Pandora’s adjusted EBITDA net loss in Q3 2017 was $5.3 million -- a 20 percent improvement year-over-year versus $6.6 million in Q3 2016, but not quite enough to convince onlookers of a path to profitability, especially considering the arduous cycle of recovery that so many corporate shakeups in a row leave in their wake.