Pandora Media's Management Presents at Telsey Advisory Group's 5th Annual Spring Consumer Conference (Transcript)

Apr. 9.13 | About: Pandora Media (P)

Pandora Media, Inc (NYSE:P)

Telsey Advisory Group’s 5th Annual Spring Consumer Conference Call

April 9, 2013 9:05 am ET

Executives

Dominic Paschel – Vice President-Corporate Finance and Investor Relations

Analysts

Jaison T. Blair – Telsey Advisory Group

Jaison T. Blair – Telsey Advisory Group

So thank you for coming to Telsey Advisory Group’s 5th Annual Spring Consumer Conference. I’m Jaison Blair, the Senior Entertainment and Communications Analyst at TAG. We’re excited to have Dominic Paschel, the VP of Corporate Finance and Investor relations of Pandora presenting today.

Pandora is the leader in Internet radio in the United States, offering a personalized experience for each listener. The foundational technology of Pandora is the Music Genome Project, which catalogs almost 450 attributes or genes to describe a song and uses complex algorithms to organize music around those traits.

Those characteristics are used to create playlists and stations for listeners that adapt in real time based on individual feedback of a listener. Listener hours for Pandora during the month of March were 1.49 billion, an increase of 40% versus last year with 69.5 million active listeners. Pandora’s share of the U.S. radio listening was 8.05% in March, up from 5.73% last year, and just as an addendum, about 20 minutes ago, Pandora announced that it has achieved the 200 million user mark.

And with that, I would like to turn it over to Dominic, and thank you for joining us today.

Dominic Paschel

Thank you, Jaison, and thank you guys for taking the time to come by and listen to some music with us. Just a reminder, we’re a publicly traded company. We’re nearing our two-year anniversary, so please reference all our risk statements filed with the SEC and on our website.

What Pandora is doing is redefining radio. Pandora is disrupting probably a century long standard that is yet to be disrupted. When you think about it’s the last medium of media that is yet to undergo a change due to the Internet, a lot of people ask me why now? Why has it taken Pandora and Internet radio so long to be a catalyst for change?

Partially, it’s because as you are very well aware and likely very well connected here in terms of connectivity, only now are Internet access, Internet connectivity becoming as prevalent as radio waves have been for the greater part of the century.

Pandora is going after a market that is roughly -- when you look at audio consumption, 80% of it takes place in kind of a lean back serendipitous multi-tasking setting. You listen to music as you are working your spreadsheets or cooking dinner or picking up your children. That accounts for around 80% of the total consumption of audio, and that on terrestrial radio is about 56 hours per month.

The average Pandora listener listens around 21 hours per month today, so there is still a lot of opportunity even within the existing installed base. The other 20% is what is oftentimes confused with as competition for Pandora, which is the on-demand space, which is you know a song you want to hear, you want to hear it right now, there is a playlist you want to create, all of that amounts to around 20% of the consumption of audio that takes place in that lean forward environment, and I spent a lot of time over the last two years kind of differentiating between the two.

When you look at how radio consumption takes place, nearly half of it takes place in the automobile, in the car side of things. The other -- the rest of it, 35% in the home, 18% in the office is generally how radio has been consumed, again to the amount of roughly 56 hours per month. When you look at what Pandora is bringing to the table in terms of combining the best of what has historically made radio successful, which is ubiquity, which is discoverability, zero work, and ad supported and free to the consumer, that is why roughly 93% of the U.S. population listen to radio still on a weekly basis.

When you look at what it is combining is the best that the Internet brings, the personalization, the one-to-one, the customization to enable Pandora to provide your Bruce Springsteen station the way you like it. Something also in the release this morning that Jaison referenced earlier aside from kind of some of the other notable milestones I’ll get to in a minute, Pandora has played roughly 1 million songs -- unique songs in the month of March. That’s with over a 100,000 artists, most of which never get airtime. Our Founder likes to talk about a story, and he goes around to different cities throughout the country and does what we call town halls. At those town halls, Tim sits there, we invite a number of our users and generally fill up a room that could be two to three times the size of this room, and they come to chat about their Pandora experiences.

At one of these town halls, there was an 80-year-old gentleman who his granddaughter had set up Pandora for. And I think he was a little confused by the time or at least at the kickoff of the conversation, because for him Pandora was a brass band product for him, that’s all he knew it to be. And so, other people were talking about other genres and types of music, how some would put-on Pandora at the time when their parents are kind of in the final stages of life with Alzheimer’s, others with the entry of their youngest one during kind of the birthing period. It’s pretty interesting and intimate in terms of the stories that we hear at these town halls, but that’s what the beauty of the Internet allows to provide which is really that personalized component that allows Pandora to deliver the best music.

When you look at our share of radio listening, this is the long tale, this is how it’s grown every discrete quarter since fiscal 2007. That’s – as a reminder, fiscal 2007 would basically be -- our complete calendar year 2016 -- 2006 since we’re off by about a month. When you look at that, what that means in terms of year-over-year growth, it’s tremendous. We’re now over 8% of the U.S. radio market. That essentially makes Pandora the number one station in every major DMA throughout the country. And I will come back to that point in a bit when I discuss some of our local market initiatives. But needless to say that it makes Pandora the largest station in New York City, in Los Angeles, in Chicago, in Dallas, Fort Worth, et cetera.

When we look at the business model, Pandora drives its revenue from a tremendous -- I’m sorry, I’m seeing something different on this screen. So, we have a notable milestone in terms of what we’d like to announce today, we did so through a press release, which is that we have hit the 200 million user mark, that is – a very few Internet companies have done that in their lives, and if I were talking to you two years ago, roughly two years ago, we would have had 100 million registered users.

Today, that is now 200 million registered users, which is we’re very happy to kind of share that milestone with you here today at TAG. Also, not only having users is important, it’s also their engagement with the product. Pandora derives a lot of its intellectual IP from user feedback from thumbs up, thumbs down, skipping songs. This number has grown from the same time, again two years ago, this would have been 10 billion thumbs through the life of the company. This is now at 25 billion thumbs, and that’s important for, you know, I am going to use the buzz term here, but that’s important because of the data component in terms of what powers the algorithms. Often times people look at our business and say, okay, it’s just Internet radio.

Pandora was not the first creator of Internet radio. In undergrad,, I think I used –two kind of consumption products. I had my on-demand product, which at the time was legitimate or at least thought to be from university students and that was Napster. And then, when I was studying for Econ test or what have you, it would be to LAUNCHcast, , Yahoo had a product called LAUNCHcast, and that was kind of one of the trailblazers in terms of Internet radio. But what Pandora came along in 2006 and did was really take the base of its foundation, which was the Music Genome Project mapping out the DNA of songs and pivoting that into radio, making what you hear the next song most likely what you want to hear. But the story has evolved since then. It’s not simply about playlists, nor is it simply just around the Music Genome Project, it really comes down to the big data component of knowing what a 17-year-old in Muscatine, Iowa wants to hear based on other 17-year-old males in Muscatine, Iowa. And so that helps for the algorithms in terms of allowing for Pandora to grow that continued usage.

And that kind of evolves into how Pandora makes money. Pandora fundamentally looks to be ad supported. We don’t necessarily strive to change our business model to be supportive in the sense of subscription revenue. We like it. We like it as an alternative for users who do not want to hear advertising, and we offer Pandora One, and have offered Pandora One for basically the life of the company.

That being said, the big market opportunity really is on kind of this first bucket which is to be ad supported. Pandora is combining three major ad markets, $30 billion digital media interactive budget, excluding search, eMarketer now has the mobile market growing to roughly $7.5 billion or more, Pandora is third only to Google and Facebook in that category. And then the third bucket which is very unique to Pandora would be that of radio, traditional terrestrial radio. That traditional terrestrial radio market makes up around $15 billion in total available market. And so when you combine that in the U.S. that exceeds north of $60 billion of what we’re going after.

So we often times get questions of, why don’t you do an on-demand product or -- and our response to that generally is, it’s interesting, but music sales do not amount to what the total advertising opportunity for Pandora is, it’s a fraction of that. And so, that’s why we’re heavily and purely focused on redefining the radio market. That’s translated into significant year-over-year growth in revenues. We did a $125 million just in the last quarter. Also notable in the last quarter, we’re now doing more than $0.25 billion in terms of mobile revenue, again only third to Facebook or third after Google and Facebook.

And it is something we’re very proud of it. It’s something that we knew with the adoption of kind of the iPhone and the Android iOS that we needed to make Pandora truly mobile, and then I’ll get into that a little bit in a second. Part of that is by allowing Pandora to be everywhere radio is, every part of your life from where we started, which was your desktop, laptop, to the very fast evolving and adopting mobile world of smartphones and tablets, and now even places where most applications don’t have a natural legitimacy to be in, such as the auto side of things.

We’re now in more than 85 models that have hit the road, that’s just up from three in the last two and a half years. And ultimately in consumer home electronics, so your smart TVs, your Sonos devices, your Roku devices even LG Internet connected refrigerators, believe it or not. And so, what matters to investors generally though is, that’s great that you have all this connectivity, all this usage, but what does that mean in terms of the money side of things? And so also in today’s release there was a new statistic where Pandora users – the mobile users are now above –140 million of the 200 million have now used, have enabled a mobile connected device of some sort to their Pandora account.

When you look at the usage and consumption pattern the way it’s changed over the last four years, it’s evolved from being roughly 12% of our usage to now being more than 80% of our usage in terms of the nearly 1.5 billion hours that Jaison referenced earlier. And as such, we’ve had to grow monetization. One of our key metrics that we look at is revenue per thousand hours or RPM. When we look at our RPM, we’re looking where the desktop has evolved from. The Desktop has gone from -- at the end of fiscal 2009 to present day, it has evolved from roughly $18 to in the fourth quarter just north of $52 per thousand hours.

We’ve made great strides on the mobile side as well. Two years ago this number would have been at $13. Last year, it was at $20, and we’ve evolved it to nearly $25 per thousand hours, that’s where the focus of the company has really been in terms of kind of an ad sales, ad product as you would expect, given that the vast majority of our hours are consumed there. So we’re very happy with the progress we are making there, very few companies generate in terms of the absolute dollars that we do in mobile.

One of the keys to growing up mobile RPM is to allow for your mobile revenue stream to grow at a faster rate than your mobile listener hours. In the last two quarters, this has actualized and we saw this last quarter mobile hours grew 70%, whereas mobile revenue grew 111%. The quarter before that, it would have been mobile revenue growing 112% with mobile listener hours growing 85%. And so when you have kind of that growth rate of the revenue exceeding that of the growth rate of the denominator that really allows for -- that allows for the expansion of RPM, and ultimately, that’s where the leveraging in the model is.

And just in closing here, I want to address before we jump into Q&A. We’ve made great strides not only in mobile, but also in the other category of money, which is $15 billion and that’s on the local radio side. This is a good example of the local ad from Fry’s Electronics, big California local advertiser all over the state. This is a very simple example of what they’ve opted to do, but it’s a good example of how we’re going to be launching into mobile -- sorry launching into local in the way the local radio buyers are used to buying audio products.

[Commercial]

Unidentified Company Representative

So you saw with that Pandora has unique benefit even on mobile devices that others don’t. Number one, you saw Pandora can take over the entire screen space of the phone, so I know there is great debate about kind of fat finger at syndrome and click-through rates being artificially high. But actually the data suggests over the course of last two years that click-through rates are higher in the mobile environment. And Pandora has a unique benefit there where the reason you are on Pandora is to listen from an auditory sense perspective, you are there to hear music. So when you thumbs up or thumbs down, we may not always give you an audio ad per week, what we can do is take over the entire screen space of the phone.

Now, this is an example of kind of a local audio advertiser, so this would be on kind of a skip the song or a station change, somebody might get this. And so the leave behind is a click-through that might reference a very specific product. So Fry’s could adjust this product to the Kindle Fire, it can do the iPad Mini, it can do different product sets to see how the click-through rates are depending on kind of the appeal of that product.

Now, the click-through combines the technology, old medium technology they used to use, which is your traditional radio, audio side with your weekly circular that you would get in print media. Now, this is a bit of a dog’s breakfast as we’d like to say, but different sites optimized differently in the mobile environment. And so this is a methodology to combine kind of two of the older mediums of advertising in a way that gets the radio buyer across the Rubicon and ultimately comfortable with buying Pandora, and we are seeing that with 8% of market share in the U.S. as I referenced earlier. This now means that Pandora is the biggest station. When you look at this data, this is one of our integration screenshots with STRATA. STRATA, there are three major buying platforms for radio buyers in the U.S. predominately and they would be essentially STRATA, MediaBank, and Donovan. MediaBank and Donovan are merging, so you will probably know them as Mediaocean going forward.

But we announced in our last call that we are finally integrated into the STRATA component and live with it and look to be live with the Donovan and MediaBank piece towards the end of March, early April.

And so, this is important to understand, because this allows for reduction of the friction in terms of the buying process that a radio buyer would go through it. On the screenshot, you probably can’t read all the numbers necessarily. This is – some of this is mock data at least on the bottom half, because we haven’t licensed that. However, the top data would be Pandora as it relates to Triton measured data.

And so, this is looking at Los Angeles, the Los Angeles demo from adults 25 to 54 virtually Monday through I think Saturday from 6 am to 12 pm, and we call it PALA.. We have our own call signs so that way we mirror the way the look, the feel , the touch of radio. And so, we speak in radio like speak AQH/CUME ratings, all of these are what the radio buyer understands and ultimately allocates their dollars to.

The screens are not the most consumer friendly, but this is again for people who have been trained on buying through these systems for the last – for the greater part of the decade now, and so we’re very happy to be integrated with that.

And I think with that, I will go ahead and open to Jaison’s questions and then perhaps we can get into some of yours as well.

Question-and-Answer Session

Jaison T. Blair – Telsey Advisory Group

Thanks, Tom. So your listener hour trends continue to be outstanding, my sense is that smartphones are currently the primary catalyst in the U.S. What share of your mobile listening hours take place in vehicles, and as a follow-on to that, on most of the OEM prototypes, we’ve seen Pandora has prominently displayed. How do you see the automotive media experience changing over the next three years and what’s your role?

Dominic Paschel

Yes. As you guys saw in the beginning of the presentation, there are roughly 47% of consumption takes place in the car. And as I talk to this, if the AV team can queue up the video and play it in the background. Pandora really aspires to be not only in the U.S., but throughout the world and on everywhere you would get traditional radio, and as such that means in the car.

Today, you can get Pandora in the 85 models I discussed. The first phase, when you look at auto integrations taken place in basically three different phases. Phase I, today you can put in your auxiliary jack, Bluetooth it to your smartphone and stream it. Pandora doesn’t always know when that’s being had in the car and you still control it through your form factor of your phone.

But Phase II, which you see on the screen here, is really what the 85 models are doing when we say that they are rolling out. And that’s kind of the integration into the infotainment systems of the automotive makers. This is an example of Cadillac CUE, one of the more sophisticated UIs that show Pandora integrated.

It still uses your phone, so you will still pair through your phone. However, during the next iteration, I think General Motors at Mobile World Congress actually noted that 4G connected car is coming soon, that’s almost faster than Pandora ever anticipated that happening in terms of the car. So at some point in the future, Pandora won’t even require your smartphone. It will operate through your General Motors chip or whatever 4G chip or the latest technology that is out there to stream Pandora seamlessly. And so we’re very optimistic about what this means for Pandora’s long-tail growth.

The average replacement cycle for a car is one every seven years. And so I think, from the auto numbers out last week, my memory served me correctly, kind of a six-year high of 1.5 million units were out there, and so we clearly will benefit from that. But I think from an usage standpoint, it will ultimately be kind of one of the -- it will snowball effect towards latter half of the decade as people replace their cars.

Jaison T. Blair – Telsey Advisory Group

And your 8% usage share, which component of the market share pie is that? Is that mostly non-vehiclelistening?

Dominic Paschel

Right, Jaison that’s spot on. So, theoretically if we cut any new users from coming to the vehicle or coming to Pandora theoretically, you could potentially even double your market share just by getting in the car.

Jaison T. Blair – Telsey Advisory Group

Terrific, thank you. So, we took six years to get to a 100 million users around the time of the IPO, and less than two years to get to the 200 million user mark, my understanding is that most of these are U.S. users. Can you talk about your global aspirations?

Dominic Paschel

Sure, and when we look at our aspirations are to be radio throughout the world, to have more than 1 billion users. It’s interesting, because today we announced the $200 million user mark, but had we not started blocking IP address as the data suggests that Pandora could be nearing 1 billion users globally. We did start blocking IP addresses, however, in 2007 to comply obviously with copyright and to be in compliance. Most notably, we launched, however, back into Australia and New Zealand after a five-year hiatus, I was actually out in Sydney in the January timeframe meeting with different folks. And I think, we’re very poised and actually grow tremendously in Australia and New Zealand, albeit that’s only 27 million additional users, they can become the blueprint of how Pandora can go globally.

Our challenge isn’t the technology, again not the aspiration. Generally speaking, it comes to an understanding where the royalty rate should be within a geography. And so, throughout the world, generally speaking, radio pays a mid single-digit percent of revenue to the rights holders. In the U.S., however, that’s on the extreme and of the equation, which is virtually they pay nothing. And on the other end, you have Internet radio with now Pandora having 75% market share of Internet radio paying nearly half of SoundExchange’s royalties in the United States.

And so we could enter into other geographic territories right now. However, we want to structure a deal that would accurately allow revenues and cost to grow commensurate. And so that would imply that is almost a percent of revenue within those geographies. And so only 8-K that we filed on July 12, last year, we discussed some of the arrangements we have with PPAU and PPNZ, which is Phonographic Performance Company of Australia, Phonographic Performance Company of New Zealand and APRA/AMCOS. So, within that filing you noticed that it’s anticipated to be less than 25% of revenue. We can grow a business when you enter new geography as a percent of revenue at such a rate. And so, we’ll see how it evolves. We’re patiently opportunistic as the way we describe it at Pandora to continue to expand internationally.

Jaison T. Blair – Telsey Advisory Group

Terrific. So over the last year many people have talked about new entrants into the market, is it possible for Apple to negotiate a lower cost of content and cost-to- market venue?

Dominic Paschel

Sure. It’s interesting because similar speculation took place probably seven months ago in the September timeframe. And I’m always personally fascinated whenever, XYZ company is in negotiations with the labels. Today, anyone can start Internet radio service theoretically, and they can benefit and operate from the same compulsory licenses that Pandora exists today, Section 114 of the DMCA, and as such they would pay the statutory royalty rates.

So anytime there is a negotiation. It’s interesting, because to me it almost implies an on-demand product, partially because the way the current federal law is set, Pandora, as well as Internet radio rates are set under compulsory new license and more specifically a precedent known as willing buyer/willing seller. That precedent says and looks for a market rate transaction to set those rates. Part of the challenge has been that there hasn’t been an accurate market rate transaction. But I would be interested to see it, I’d be watching if this were to be true to some degree, the labels must realize themselves that they are setting precedent potentially for the next copyright royalty board hearings that are going to kick off in less than eight months. So, you have to ask yourself, does that make sense for the labels to do?

And also just a side note, Apple never benefited from historically discounted rate for any of its content.

Jaison T. Blair – Telsey Advisory Group

I guess as a follow-on to that, can you give us an update on the standing of the Internet Radio Fairness Act, which I believe was referred to the judiciary committee in September?

Dominic Paschel

Correct. The Internet Radio Fairness Act, IRFA known by short, it’s supported by a broad coalition of over 30 different webcasters, including Pandora as well as Clear Channel. And so we have bipartisan support in the House and the Senate, and we look forward to kind of continuing along our initiatives there. Our bill is kind of sunset or die for lack of better word with the congressional – with the new congressional class incoming.

But I think, one thing is clear in terms of understanding the current situation which is that there is a hodgepodge of laws that have come into an existence over the course of 20 plus years that have fundamentally put technology at a disadvantage, unlevel playing field. And I think that’s something Pandora, as well as the broader industry will continue to advocate for to allow for both the U.S. consumer and the U.S. job seeker to essentially benefit from kind of the evolving technology.

Jaison T. Blair – Telsey Advisory Group

Okay. So Netflix Streaming got its start as replacement for DVD rental, but it has subsequently begun to shift into purchasing original programing. We think this is an effective way for them to convert to first-mover advantage into a more sustainable market position as more competition emerges for streaming library content. Is there a similar strategy opportunity available to Pandora to begin to cultivate exclusive or near exclusive of content or rights and might this provide an opportunity to lock in content cost?

Dominic Paschel

Yes, it’s interesting, because the parallel of Netflix there is they were much more similar to Pandora in their early days when they did have the DVD business, because they too effectively operate it under a compulsory license known as The First Sale Doctrine. And so that allowed them to – they didn’t have to go and do direct deals. But when they moved to the digital arena that essentially forced them to do direct deals, and when you direct – I think they highlight the key example of when you do direct deals, the challenge with that is every two years– it’s up in the air again. And with due respect to our on-demand vendors, that’s a challenge that in Apple or Spotify, Rhapsody, a MOG, an RDIOall of those companies have to engage in that constant behavior of negotiations with the labels, and so that’s similar on the Netflix side of the current Netflix side of things. So I think they are looking at other forms of content to help again solidify the continuity of that. And so when Pandora looks at its content, we are very happy in terms of operating under our compulsory license, the way radio has historically done. When you look at radio, 80% of it though is music. So you have to ask yourself, are we missing that much? I would argue no. But I will say that, we have looked at on different types of initiatives to Pandora eyes other forms of content. And so one of our first initiatives there was with comedy, so you can go and find your Jeff Foxworth Station, your Margaret Cho station whatever you want Pandora has it for you. So we’ll continue to look at different forms of content and how best to integrate them into the Pandora platform. But at the same time, I think, the odds of Pandora spending $400 million in equity for a high name talent, that’s probably not in our genetic makeup.

Jaison T. Blair – Telsey Advisory Group

So on Sundays when I’m driving my six-year old to a gymnastics class on the west side, the owner of the studio who is playing a Pandora station that sounded almost exactly like one of my stations, it made me think about the customization process for playlists. Can you talk about the Music Genome Project, the genesis of Pandora? How the technology is a competitive differentiator, and is there a human element that’s choosing or promoting one song overnight?

Dominic Paschel

That’s cool. We have a lot – we do like the genre stations. We have some children’s genre stations. I was in Oakland at a first grade class showing them about Pandora folk tunes and they just jumped in singing right away. So that’s great to hear.

Two things want to notice, we are now available in businesses, so through our partnership with DMX, we can now license musicto businesses which is great, that was always an area that we always had inquiries on, but now can any organization can license it, pay $75 per box from DMX and $25 subscription, and we are good on the royalties and the licenses there.

From a technological standpoint as I kind of hinted on earlier, Pandora’s makeup and what makes Pandora special isn’t creating static playlist, it’s about creating real live dynamic algorithms. And so to that extent, we map out anywhere from 280 up to 450 attributes that make up a song. Indian raga, I think has 450 attributes. And so we have many, many music analysts that have – many have actually been with the company for 12 years since it was first known as Savage Beast Technologies, where it was that core music recommendation technology of mapping up the DNA of songs. But today, again I think a lot of the competitive IP using just on the Music Genome Project, although even today there are systems and solutions that don’t have the ability to map out songs as much or as sophisticated as the human ear.

And so, you hear about them powering different radio technologies that are out there. Who is our direct competitor? Direct competitor is Terrestrial Radio. Terrestrial Radio from the standpoint --CBS has had Last.fm, but they’ve all but effectively shuttered it, and Clear Channel has iHeartRadio. iHeart, since relaunching two years ago, has really kind of been stuck at the 10% market share. Meanwhile Pandora has gone from 58% to 75% of market share. And what has enabled us to do this is really that the core, which is the Music Genome Project, but now even more so the accelerating lead that we have in terms of the consumers taste, the consumers preferences.

We like to – as you guys have heard the song We Are Young by fun. Someone who looks for that song say, 24 months ago might have been-- from a demographic standpoint might have been kind of a young San Francisco hipster. Meanwhile, when it was first used as --fast-forward to little more than a year ago, where it was on a Super Bowl commercial music. You have a different demographic searching for that song, and then fast-forward to when it was covered six months after that on Glee and you have a different demographic looking for that.

And that’s what the power of Pandora’s algorithms do. They have to be able to maintain those different discrete subset of bonsai trees, if you need a visual in order for Pandora to continue to be your Pandora, but also evolve with both cultural and personal tastes, and that’s really what the power of the algorithms are. Often times we hear the recommendation engines at some of the large tech companies have – you can think of Amazon and Apple -- they will have different recommendation technologies and really not to be arrogant, but those are somewhat child’s play when it comes to what the Pandora’s algorithms can do.

Jaison T. Blair – Telsey Advisory Group

So I recently upgraded my family to share data package with Verizon Wireless and, sadly we had to give up our limited data plan. Do you have a sense of what percentage of your mobile sub strong on limited data plans and as wireless subs convert to unlimited data plan from unlimited data plan to shared data packages, do you have a sense of the impact on listening?

Dominic Paschel

Yes, so we had data and data caps for more than two years at this point. I think with AT&T being the first to offer it, if memory -- to impose it.

The cool thing about Pandora and obviously the 47% of radio consumption that takes place in the car will benefit from this as well-- is that Pandora streams at 32 kilobits per second, which is roughly 14 megabytes an hour, a listener hour. So in order to go through a one gig, sort of a third of a 3 gig plan, soto go to 1 gig, you have to listen to 70 hours of Pandora purely on your mobile device. Which again the average Pandora listens 21 hours in total in the month, of which some portion of that might is likely mobile. Obviously 80% of our usage is mobile. But they could also be WiFi-connected when you are here atthe Intercontinental Hotel, it will still view as mobile, but it will be WiFi-connected. Jason Blair So punchline?

Dominic Paschel

It hasn’t been a problem.

Jason Blair

Why don’t we open it up for questions? Are there any questions? If not, I can ask another one. Anyone?

Jaison T. Blair – Telsey Advisory Group

You recently introduced a 40-hour per month listening cap on mobile. Can you talk a little bit about the rationale behind that especially with mobile becoming about 80% of your total usage?

Dominic Paschel

Right. In the history of Pandora, we’ve done this one other time. In 2009 we instituted a 40-hour cap on the desktop and that allowed us -- it was kind of a smart leverage to allow for cost control. On the mobile environment, where 80% of our usage comes. We anticipate this affecting less than 4% of our user base, which when you think back in 2009 it affected nearly 10% of our user base, so it affected less.

And we get the question of why now often, which is a couple of things. We would like to reinvest some of that high-usage spend in to other areas of the company such as expanding the distribution capacity of the company faster, investing on our local initiatives to essentially accelerate revenue and then also on the product and R&D side, we believe that it was smart lever to pull, something that we had been planning for, it’s not something – not a knee-jerk reaction that you can do, because you have to rollout the technology to enable this, as well as one key component was the completion and integration into the seamless mobile payment platforms.

So iOS, we’ve been through the one click. Through the app store you can pay for the subscription either $0.99 to get you, to top you up till the end of the month, which gets you to still app supported listening, but it just reminds you that we’re paying a cost or do 399 a month, which gives you a limited listening any on mobile desktop doesn’t matter with no commercials.

And so we had just finalized and integrated that into to Google Play platform in the fourth quarter. And so all the pieces fell into place in terms of why now, that was why now.

Essentially, though, it’s somewhat contrary to our – to Pandora’s belief to cap any users. But that’s also part of the economic reality that we have articulated in terms of the lack of parity there.

And so that’s something to considered for the labels. We ultimately want to continue to provide great revenue streams for the artist, but by capping to some degree that implies that we have, we needed to control the cost side. We’re not just going to grow unabated and spend that money.

Jaison T. Blair – Telsey Advisory Group

Are there any other questions? We can wrap it up. Thanks.

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