Much Ado about Nothing

Pandora’s continued press barrage about growing revenue, ending caps on listening hours, and their “brilliant” idea of being more like Radio by adding commercial pods was supposed to impress investors and Wall Street. The effect was devastatingly the opposite.

Pandora’s stock plummeted 13% for the week ending August 24 on all this “good news” as investors’ fears about Pandora’s future continued to grow. And in its most deliberate statement about a stock in recent memory, The Motley Fool Investors Newsletter urged its readers to AVOID Pandora stock and sell its shares if owned…”NOW”! (Their word, not ours)

If Wall Street is not impressed with Pandora’s “growth” and so much of its future depends on investor money to survive, is the grim reaper of bankruptcy far behind? 

If one takes only 5 minutes to really read what their investor/press conference call was about last week, the substance of which was heavy on public relations, you will see how underwhelming their “news” really is. Here are just a few examples for you to consider:

  • An internet playlist service built on no or very limited commercials has decided to add back to back commercials “just like Radio does” to reduce listener annoyance.
  • Quarterly revenue has grown for the 2nd quarter to $157.4 million, just topping Wall Street estimates, which were $156.3 million.
  • Pandora’s widening losses wiped out its revenue gain as the Internet playlist company posed even larger losses for the quarter of $7.8 million vs. $5.4 million over the same period.
  • Perhaps the most ominous point was their own words; Pandora provided “weak guidance” forecasts for the rest of 2013 AND 2014, blaming technology investments, marketing, and royalty fees. As a result, the good revenue news was wiped out by larger losses, making the stock plummet last week.
  • According to last week’s, ownership of Pandora stock has been “gruesome”, with a 43% decline since its IPO. As a result, analysts are now projecting 2014 Pandora revenues of only $633 million, lower than Pandora’s own estimate of $640 million.
  • To put all this in context, Southern California Radio will bill more than Pandora for the entire country in 2013 AND 2014.

So what’s the real problem with Pandora’s business?

Well, let’s start with the competition. As CNBC put it, “Radio has continued to be a fierce competitor” that is not going away any time soon. But the real, unspoken problem is Spotify, whose growth and business model are attracting more subscribers percentage-wise than Pandora has over the past 12 months. Add the coming Apple iTunes Radio assault on their business and the future for Pandora is grim.

Let’s bring this home to Southern California for a real gut check.

Pandora claims its listeners spend 20 hours a month on average with their music playlist via the Internet. They don’t describe demos, just “listeners,” and their methodology for measurement describes a visit to the web site, for how long we don’t know. It certainly is not the 15 minutes required as is the case in Radio. Still, let’s take a big data leap and give Pandora about 40 minutes per day nationally for Time Spent Listening.

For LA Metro stations alone, the Time Spent Listening for Adults 18+ is 2 hours and 15 minutes. (Arbitron PPM, Q2 2013, Monday-Sunday, 6:00AM-Midnight)

Yes, you read it right. For all of Pandora’s bluster, it gets only 40 minutes per day of some sort of listener nationally while our LA Metro stations alone get 2 HOURS AND 15 MINUTES A DAY.

Pandora = 40 minutes a day of listenership nationally.
LA Metro Radio = 2 hours and 15 minutes a day of listenership.

Think on that for just a minute, Mr. or Ms. Advertiser.

We’ve all heard the story line, “if Pandora were a Radio station, it would rank 7th in the LA Metro for Adults 18+. Really?

Again, their methodology is based on monthly visits to an Internet site while Radio is based on actual weekly listening to their favorite radio stations. If we project somewhat in a reasonable manner and average their monthly audience and fit it to Radio’s weekly tune in, Pandora would potentially rank about 25th in the market, not 7th. This is pure conjecture on our part but it intuitively feels correct.

LA Radio is coming off a huge July 2013 Miller Kaplan Arase revenue report. Weekly Radio listenership from February 2013 through June 2013 is up over 1%, while Pandora has lost 11% in listenership in the same time period.

LA Radio alone dominates Pandora nationally in any category you can think of except one…perception.

This perception is generated by an ongoing and effective media blitz by Pandora to desperately prop up its stock in the hopes that Apple, Spotify, or a player yet to be named, will buy them up and soon. The problem is Wall Street is not buying their blitz any more as last week’s stock drubbing dramatically indicated.

After the media blitz, the questionable “methodology”, the mounting quarterly losses, the intense competition in the Internet playlist space, more spot breaks to annoy their base, loss of both monthly listeners and TSL, and a growing and popular Spotify, the sound and fury of Pandora seems somehow…muted.

This seems to suggest that Pandora has seen its best days, like all the other “threats to Radio” over the past 60 years.

Let’s bring all their press and PR into some perspective regarding our own surging business. We welcome and encourage honest and fair comparisons with any serious competitor as Radio always looks better by comparison. But let’s make it fair and let’s make it a real comparison.

We want advertisers to make informed choices about their media decisions, which is what this post is really all about. Can any business afford to really make a comparison between Southern California Radio and the Pandora Internet playlist service?

In our opinion, Pandora’s Internet playlist, when compared to the massive power of Southern California Radio is, in the end, much ado about nothing.