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Pandora Media (NYSE:P)

Goldman Sachs 22nd Annual Communacopia Conference 2013

September 24, 2013 12:25 p.m. ET

Executives

Tim Westergren – Founder & Chief Strategy Officer

Dominic Paschel – Vice President of Corporate Finance and Investor Relations

Analysts

Heath Terry – Goldman Sachs

Heath Terry

So we’ll go ahead and get started. My name is Heath Terry. I cover the Internet sector for Goldman Sachs. We’re really happy to have you all here, and particularly happy to have with us Tim Westergren, the Chief Strategy Officer and Founder of Pandora and Dominic Paschel, the Director of Investor Relations.

Tim, maybe just to start, since there are probably some people in the room that aren’t as familiar with Pandora beyond probably being users of the service, how do you describe Pandora as a company now?

Tim Westergren

Actually, do you mind if I get a show of hands the people who’ve used Pandora in this room? Excellent. So the company, Pandora is a radio company or personalized radio and our goal is to supplant the existing broadcasts of formal radio, becoming much more pleasing to consumers and something much more I think powerful for musicians. Our business in some ways is relatively simple, principally an advertising supported free product supplemented by a pretty healthy subscription business. We’re not a premium business in the sense we’re trying to drive people to pay.

We view that as an opportunistic part of our business and one that is a happy home for Pandora power users, but the real name of the game for us is delivering on the ad supported business, which increasingly is an audio ad supported business. We are working very hard on making Pandora ubiquitous. So over 1,000 devices now support Pandora, ranging from obviously desktop, laptop computers, blue ray players connected devices, refrigerators and I recently learned Jacuzzi now comes embedded with Pandora. So if you’re in the market for a Jacuzzi I recommend the Pandora embedded version.

Heath Terry

Nice. Everybody needs a hot tub time machine. With that ubiquity that you’re starting to see, how important is that from a competitive standpoint, particularly if you see other new services, obviously this week with Apple launching theirs, what role does that distribution network play?

Tim Westergren

That’s a huge part of our story and it’s many, many years in the making. So we launched Pandora about eight years ago and we’ve been -- we’ve got a substantial part of our engineering team focused on getting Pandora embedded in as many places as possible. So if you step back and look at radio listening at large, half of it is in the car and the rest is essentially split up between the home and -- so about half of the rest home and then the remaining office and working on the go.

So to really capture the car and the home in particular you need to be essentially where broadcast radio has always been. It's an enormous, enormous part of our story. It represents a big part of our engineering efforts. And I think it's a big source of differentiation for us. One of the great benefits of having been first -- or not first, but being such a large market shareholder, north of 70% of internet radio is that there’s a lot of pull for Pandora from the devices.

So, whether it’s a blue ray player or it's a car, their consumers want Pandora on their products. So they actively work with us to embed it and they actively advertise us as a feature on their product. So we get this great benefit of distribution, along with free in kind marketing. So, there are some car ads right now that look like Pandora ads which are really, it’s great for us.

Heath Terry

You mentioned the engineering side of things. When it comes to differentiating Pandora as a product against some of the other music services that are out there, what does that technology allow you to do that others can't or aren't?

Tim Westergren

It’s simple for us, which is we build better playlists and I think that that -- it seems relatively simple on the surface and for a consumer, hope hopefully for you all that have been using it, it just seems really easy, type in a phone an artist and it just plays music that you like almost all the time. But what makes that possible, what makes that first hour enjoyable as well as the 100th hour is an immense amount of intellectual property, which is a combination of musicological.

We have a very large -- after that Pandora Public Music Genome Project, which is a database of songs, well over a million now that have been individually analyzed by a trained musician one song at a time, along as many as 450 attributes per song. So really manually detailed, like musical DNA, which we use then to put songs together into playlists and that's now supplemented by an immense amount of feedback data from listeners. So what’s the latest number on songs, Dom?

Dominic Paschel

North of 36.

Tim Westergren

North of 36 billion songs up and songs down that have been given across hundreds of thousands of stations. You put those together. And I think it puts us in a great position to deliver the right playlist to individual users based on their individual preferences. I do think we do that better than anybody, including Apple.

Heath Terry

Over the past year there’s been a lot of attention paid from -- on both sides of the spectrum to the cost of content and the space. Can you give us an idea of where your perspective on that is now, particularly if you see someone like Apple going with more direct relationships? Is that something Pandora might ever want to do?

Tim Westergren

Yeah. So our royalty, our cost of content is really two pieces. There’s a publishing side, which is the royalty we pay to the composers of the music. And then there’s the performance fee side that goes to the performers. The former represents 3.5% to 4%ish of revenue. The performance side is north of 50%. Those two operate under different rubrics. The publishing side operates under decree through ASCAP, BMI and SESAC. And as of last week, thanks to a really a great ruling on this from the Circuit Court, that process has been affirmed and the consent decree of publishing rights under one controlled umbrella is secure and it feels like that's in a really nice, manageable place.

The performance fee side, we are really gearing up for a hearing next year in the Copyright Royalty Board, which is three person panel that operates under the umbrella of the Copyright Office, that is tasked every five years with looking at our rates and deciding what they should be for the ensuing five years. And to your point about the Apple deal, our sense is that all the deal making that's been going on, direct deals, is narrowing the band of potential outcomes for that Board whose mandate is to find a rate that they feel reflects what a willing buyer and willing seller would pay in an open marketplace. So the more activity there is around rates, the more we feel comfortable that it won't go off the rails. So we're investing very heavily in preparing for what will be actually our first CRB hearing.

Heath Terry

And you’ve commented before about where you feel the negotiated rates that are being done now are relative to the rates that you are paying. Can you flesh that out for us?

Tim Westergren

It's hard to know for sure, because we know what we read which is dangerous. But it seems the Apple deal -- our reading of it is it’s a little bit less expensive than ours. But I think the headline is pretty close. Direct deals on the broadcast side seem to be substantially cheaper. The rev shares that we hear whispered for the digital side are a small fraction of what we pay. So it just feels like the data, the deals are driving in the right direction.

Heath Terry

When you look at the product landscape out there, Apple is obviously the one that’s getting the most attention right now, but when you look at the broader radio landscape online, where do you see product in this space growing? Where is the innovation coming from and what can Pandora as a product do to evolve within the framework that you’ve got on the royalty side?

Tim Westergren

The sad thing about internet radio is it hasn't been a healthy sector. It's been notable for its lack of competition and that is essentially driven by rates. In order to make the economics work at the rates that internet radio pays, you have to be able to access local advertising dollars. To do that, you need to be immense scale and that's hard to do in the first place, but it's doubly hard now with Pandora sitting there. So there hasn't been a lot of new entries frankly. Some broadcasters like Clear Channel have made forays into online. But Pandora's market share has just continued to grow over time. So competitively it's not been a strong competition story.

On the product innovation side, I think the funny thing about radio is in some ways the primary innovations Pandora has made, our CTO will kill me for saying this, is we’ve made it simpler and simpler and simpler. The ultimate -- what a listener wants when they go to Pandora is to hit a button and hear music they love and don’t bug and we do that superbly well I think. A lot goes into making that work that well. The playlist is a big part of it. The user interface is another part of it.

The infrastructure that delivers the music is another one. We stream about the same number of hours of music amongst that YouTube streams hours of video. So there is a lot of work that goes unseen. But I don't think from a product point of view, we don't look forward and say we need to reinvent ourselves, we need to dramatically alter this experience. I think if anything we need to keep -- stay focused on what does the consumer really, really want.

Heath Terry

You mentioned the importance of local and actually being able to cover the cost around this local group, 400% for you last quarter, so clearly important. What's Pandora doing to grow local as a percentage of the overall business and how quickly or how long can that 400% hold up?

Tim Westergren

The tipping point for us is obviously scale. So once we had an audience large enough in given local markets, we could then start hiring against that. And a big thing we’ve been doing is hiring, primarily former broadcast sellers and we’re hiring very talented ones who mostly take pay cuts to come to Pandora and then typically wind up making more money. So what we’re doing to grow local is hiring people. And we’re essentially slowly marching down the DMA tree, right about 29 markets now. Hope to add 10 to 12 next year. And we see as we go down that the productivity of markets based on the advertising business there and then essentially map our sales force to that. But, it's really been a tale of hiring great local radio sellers.

Heath Terry

You guys said a lot about or the benchmark that’s out there for you is local radio AM/FM. Clearly there’s so much more that you can do from a targeting standpoint because of what you know about your customers and the information that you're able to collect from a device. How far away is Pandora from surpassing what radio can do for advertisers?

Tim Westergren

On the screen right now we see the kind of Fiats in Berkley. So it has my zip code. So that local ad is a great example of somewhat of a purely traditionally advertise on terrestrial for broadcast radio. Yeah, it’s a process of educating the market. And we actually simplified our advertising portfolio initially, and literally sellers are walking in and saying I’m from KPAN, and I've come to sell you a spot like I told you last week when I was at the broadcast business. That’s the gateway drug to Pandora. Get your audio everywhere, feels like radio and then layer on things like video and the visual stuff.

So on a mobile device, this ad here would be with a company an audio ad that might say something like the all new Fiat 500 Hatchback, click the screen to get more information. Or brand new movie trailer coming out, tap the screen to calendar. So add that date to your calendar. And we're finding that buyers are increasingly adopting those things. I think that we have a very attractive sales proposition vis-à-vis broadcast radio. That is a business that has historically not been very accurately measured or reported and certainly not targeted. We offer all those things and I think that's why you see really talented people coming over to sell here. I think when a broadcast seller gets Pandora's advertising portfolio, they’ve died and gone to heaven. So we're very competitive.

Heath Terry

At the same time you've started working with some of the more traditional ad buying platforms like Mediaocean and STRATA. What impact has that had on your ability to reach advertisers?

Tim Westergren

Yeah, it's really important step in the process because the whole radio business is bought, all buyers use more or less the same platforms, Mediaocean and STRATA to measure, to validate radio station sizes and market shares. And we have had a hard time getting onto those lists. There are a lot of people who don't want us on those lists, but we managed to do that. And that has been pretty widely rolled out now. And I think this holiday buying season we’re the first real strong test case for the impact of that. But it's a key piece and I think it's going to accelerate it.

Heath Terry

What foot role too does subscription revenue play? You guys have changed your strategy there a little bit in the last few quarters around the mobile cap. How are you thinking about subscribers as customers at this point?

Tim Westergren

So the cap was not actually a subscription dive driving device. It was a cost control for a set of listeners that were listening a ton at a time when our ability to monetize particularly mobile wasn't mature enough to support it. The consequence of it was to drive a lot of people to subscription, a huge number. We’ve now -- as soon as we had reached a greater level of monetization that warranted it, we removed that. So some portion of those hours will come flowing back in. A fair number of the hours we discovered were being created by skipping behavior that we've corrected. So the release of the cap won’t have an equal and opposite impact to when the cap was instituted because we’re retaining those skip controls. About 70% or so of the hours’ compression will remain. But we'll flow some hours back in the system now.

We’re not fundamentally a subscription business. It's a great part of our business. It's about 20% of revenue. But the better we get at advertising, monetization, that's really where the home run is. And Heath, there is a point of indifference as we were communicating this with Investors on why we drove and ultimately why we removed the listener on our cap. I think a lot of the press headline was it was related to competition. But in reality we had reached the threshold on mobile monetization on ad supported that was around $34 and overall mobile RPM at around $37.

The long and the short of it is that we pay two different licensing costs, one that's 81% higher in subscriptions. And so you have to look at it from a contribution margin standpoint. And as we near the mid-30s, it’s actually more financially beneficial to the entirety of the system, financial system to actually have you as an ad supported consumer. And so the contribution margin will continue to rise as overall effective RPMs continue to rise with our increased sell through rates.

Heath Terry

You've recently raised some money. What's the plan for that? What does that allow you to do that maybe you wouldn't be able to do before?

Tim Westergren

A huge Metallica party on a battleship in that area.

Heath Terry

As long as I get invited I’m fine of that.

Tim Westergren

It's not earmarked for something. It makes sense for a company in our stage and our run rate to have more cash in the bank. It does obviously give us opportunity for potential acquisitions. Again, nothing that we have in the pipeline, but this space is surrounded by interesting technologies and teams doing things that feel more like features. And I think we look opportunistically at that. Maybe ways we could use that cash to help on the content cost side too. That stands to reason, but most of it is we need some security.

Heath Terry

When you look at the landscape out there globally, what do the opportunities for Pandora look like?

Tim Westergren

We know the product is popular overseas. When we first launched Pandora for 18 months you could access it from anywhere in the world. All you had to do is pretend you were a U.S. resident and type in a U.S. zip code. Our most popular zip codes for 18 months was 90210 on Pandora after we launched true by a wide margin over the next. It was depressing. But it was growing very fast all over the world at a time when our catalog was essentially English language only. It was really not ready. So we know the market is there. Unfortunately rights administration is just not a very healthy part of the music business. And so rights are granted country by country, territory by territory.

We’re in Australia and New Zealand. It’s going very well there. Good growth and we know that will end up being a really good story. Our hope is just that over time, as the benefits of our service become more and more obvious and apparent, that artists in particular will agitate and help propel this adoption of the countries. We've been trying and we’ll continue to, but there’s nothing imminent that I can discuss with any level of optimism.

We've always approached international expansion, particularly what we did in Australia and New Zealand is something that -- we wouldn't enter necessarily on a per track per play basis because that was a pretty challenging obstacle that you needed payers and scale to overcome in the U.S. So that's why in Australia and New Zealand we do it -- the specifics are not disclosed, but in one of our filings we talk about it being less than 25% of revenue. That's the six largest radio ad market in the world. We believe that ultimately, even though it's only 27 million people between Australia and New Zealand from an addressable market standpoint, it’s going to be a good blueprint for how we approach other geographies throughout the world.

Heath Terry

So you’ve got a new CEO. Now that that's done, that search is done, can you talk to us about what you were looking for in a CEO and what impact you think Brian is going to have on the company?

Tim Westergren

Yeah. So it was a long search. We really took our time. We looked at a lot of to blow the ocean of prospective executives for this. And ultimately I think we really landed on trying to find someone who just had great leadership capabilities. So we weren't looking for someone with a very specific discipline or a skillset from a product or a category standpoint. We just wanted someone who was a great leader. Brian's reputation is impeccable. He has one of the great dot com crash and rebirth experiences. Very few CEOs are capable of managing a company through something like that. We’re the same vintage. So I founded this in ’99.

So I know what he went through. I know what it took to do that. And a great team builder, a great strategic brain obviously. He had to manage that company through that and a low ego guy too. So a good cultural fit for us. He has some really interesting experience in advertising. But you could take that out. He’d still be a great fit for us. I think he’ll add a lot in that area quickly. But more than anything, he’s just a really top shelf exec. Heath is going to downgrade us after he finds out this next fact, but after meeting investors on day three of the job last week, flew to South Bend to watch his Irish fight against Michigan State.

Question-and-Answer-Session

Heath Terry

As long as you guys keep losing I don’t have a problem with it. So we do have microphones in the room. If anyone has any questions please feel free to raise your hand and we’ll get a microphone over to you. We’ve got one here in the front and I’ll try and look to my left too.

Unidentified Analyst

Can you talk a little bit about how some of the programmatic platforms might fit into your future monetization opportunities?

Tim Westergren

I’m sorry.

Unidentified Analyst

In terms of ad buying the programmatic ad platforms, how those might fit into helping you monetize more in the future too.

Tim Westergren

Mediaocean and STRATA in particular? Is that what you’re talking about?

Unidentified Analyst

No, I’m sorry. Yeah.

Tim Westergren

When you look at the RTBs, right now the vast of majority of what we do – we’re moving away more from the network approach as our own inventories -- the quality inventories obviously --we're getting the non-quality inventory out of the system i.e. play the skipping. Right now we’re still game about direct as it relates to going to the top 29 markets, that even though it involves Mediaocean and STRATA, those are still people oriented on each side of the phone. As it relates to networks and real-time bidding process, I think Brian will bring some interesting perspective from aQuantive and others. But ultimately, the immediate strategy is really around direct, go get our wallet share aligned with our market share of the 7.5% of radio.

Heath Terry

We’ve got one in the back.

Unidentified Analyst

Thank you. Can you just talk about -- I have a question about your audio commercial load for the people who don't pay for Pandora. What are your plans for that? Is it going to remain the same? Is it going to increase over time?

Tim Westergren

It will increase over time. I think where it eventually gets to is TBD. Maximum ad load right now is about 3.5 to 4 an hour, 15 to 30 second ads. You’ve seen no impact at all on retention or user behavior. So it's one of those things where we will over time organically increase based on the metrics of sell through and CPM and optimize that and watch for impact on listenership. We're not going to get anywhere near where broadcast radio has historically been. We don't -- we can build a fantastic business on a fraction of that. So we’ll find a happy equilibrium.

Heath Terry

A question over on the other side. Yeah, he’s sneaking up behind you. There’s a mic behind you.

Unidentified Analyst

You mentioned that the sales people that you’re hiring from traditional radio are taking a pay cut, but making more. Are they making more on commission related payments that are cash, that are stock? Is it their stock brands? Like how are they making more with a pay cut?

Tim Westergren

Taking a pay cut in the beginning and then earning more over time. So they start on a lower income and build over time with commission business sales.

Unidentified Analyst

It’s based on commissions?

Tim Westergren

Yeah.

Unidentified Analyst

And those are cash commissions or stock commissions – stock based or cash?

Tim Westergren

Cash

Heath Terry

Got one here.

Unidentified Analyst

Yes. Related to monetization, do you think that there is a global player who is needed to do the measurements? And if it's the case, what do you see as a potential actor able to pay that task?

Tim Westergren

I'm sorry. I didn't fully understand the question.

Unidentified Analyst

If we look at monetization, is there not the obligation to get a player who will play the role of doing -- looking at the different player and the market share in the industry and who could be the players to do that?

Tim Westergren

Your question is someone who can do what Arbitron does but in other countries and -- is that it?

Unidentified Analyst

Yes. And indeed playing the role of saying who are the market share for the different players because if we look today monetization remains something difficult.

Tim Westergren

I think that the immediate hurdle is just licensing. So as we think about deploying in new countries, right now we can't even begin to do it. So we have what feels like an economic race. Australia and New Zealand were the first ones to step forward and do that. That's our primary hurdle. Once we launch in a market, clearly measurements will become a key piece of the puzzle. Are you asking whether there needs to be a global measurement agency that does what ours does across territory or?

Unidentified Analyst

Yes, and independent measurements company.

Tim Westergren

I’m sorry, say again?

Unidentified Analyst

And also independent ones?

Tim Westergren

Yes. So that's preferable, not one that …

Unidentified Analyst

And who could it be?

Tim Westergren

I don't have an answer to that. I think most international geographies, like the licensing bodies that exist here, they pretty much exist throughout every major developed world. In Europe, there is generally three big primarily bodies potentially if you look at the European Union. But from a measurement standpoint, in the U.S. we’ve seen a notable example with the SEC clearing the Arbitron -- Nielsen's acquisition of Arbitron. I think that we in this country see ad buyers that are eager for cross platform third-party data. And so I think the fact that that merger is allowed to play through will be -- it's hard to see how that’s not anything but a net positive for Pandora and internet radio.

Heath Terry

We’ve got one over here.

Unidentified Analyst

I was just wondering on the acquisition of the station in Sioux City I think it was.

Tim Westergren

Rapid City.

Unidentified Analyst

Rapid City. I was just curious what your plans were for that going forward. I understand the reasoning behind it. But I was just wondering, a little longer term where you guys go with that. And secondarily just wondering too, I know you guys have talked about having it available for Chromecast as well. I was just wondering where that's ...?

Tim Westergren

Having it available for what you’re saying?

Heath Terry

Chromecast.

Tim Westergren

So we’ve actually thought about broadcast acquisitions for a while. We’ve always thought there would be an interesting synergy between a Pandora local audience and a local broadcast station. So it's not a new idea. Clearly it was prompted by what was going on on the publishing side. And we fully intend to use that to optimize that station, run it like a business and find ways to about 42,000 to 43,000 listeners in the city to see if we can do creative things both online and offline. So it's not just going to be an idle asset for us. Obviously not a core to our business, but I think an interesting ground for experimentation. And your question about Chrome -- what was your question about Chromecast?

Unidentified Analyst

When it might be available for Pandora?

Tim Westergren

When it will be available for the Pandora application?

Heath Terry

The Pandora application, yes.

Tim Westergren

We’re one of the two select launch partners with Google three weeks ago. I've actually got four of my own Chromecasts. So the app should be available here in short order in one of the first two. So that’s in Netflix. And that does highlight actually a very interesting question we've been getting a lot of over the last 24 hours in terms of this distribution platform. People have asked us specifically what's Apple's -- how many users of Pandora and iOS use other devices? The numbers is quite large actually. In the last year more than 50% of our iOS users use Pandora on a non-iOS device. So I have an iPhone. I have an Android tablet. I have a Samsung Smart TV. I have a Sonos device. So I’m one of those people that would utilize my Pandora stations across many technology platforms.

Heath Terry

A question in the back?

Unidentified Analyst

So we did get some information from Apple over the weekend. What can you share with us about the launch of radio with iOS 7?

Tim Westergren

I think it's really too early to tell what the adoption will be and what consumers will think of it. We think its impact will be modest on Pandora. That's but all we can say at this point.

Heath Terry

A question here?

Unidentified Analyst

What has to happen for mobile monetization rates to surpass desktop – the success of desktop monetization rates? And what -- how do you look at the timeframe for that?

Tim Westergren

In some way it's simple maturity. Mobile has gone from an experimental category to having a more significant share of a given budget on our fee. What's the timing you could -- we sold that as an appendage to our web sale. The audience has now grown substantially and there are a handful of really, really large mobile publishers now that are all driving the market. So it's just time. I don’t think there’s a silver bullet. We obviously have to invest in technologies and products to make the advertising access on mobile effective. That doesn't feel like a big hurdle to us right now. It just -- it's really selling and incentivizing your team to drive that market, which is what we did successfully in order cap …

Unidentified Analyst

Will this targeting be at the same level of targeting on mobile as you do on desktop at this point?

Dominic Paschel

Yes, the short answer. It’s not better. Given that cookies don't really exist in the mobile environment, Pandora has a leg up versus most other mobile publishers because we do have the registration data, self-reported zip code, age, gender, type of music in a way that we can target that much more effectively than any other mobile publisher. That's why Pandora is the third largest global mobile revenue generator. We did run basically a $0.5 billion run rate in terms of mobile revenues, which is crazy and we're only monetizing in one country at this point.

Tim's comment was specific more to the digital side and that's why our efforts have really been focused around radio, because the radio has been mobile since 1930, since the Galvin Brothers, the founders of Motorola put the first radio transceiver into an early vehicle. For all intents and purposes, radio has been mobile ever since then. So the subset of buyers as we develop this market, on the digital side, we’re moving it on the audio side from a radio buyer, they just want reach and scale which Pandora’s 72 million active users that are on average consuming 18 hours a month is providing now.

Unidentified Analyst

I know there is a lot that we don't know about iTunes radio, but just a follow-up on this. I think there is some fear that a good enough alternative -- and I’m a loyal Pandora user and I do love the experience, but a good enough experience with adequate library with fewer ads conceivably from a company that arguably doesn't need the revenues as much as Pandora does creates a challenging environment for Pandora.

Tim Westergren

So we actually -- this has been tested. iHeartRadio launched a while ago within a massive in-kind marketing budget, no advertising at all, a feature they very loudly announced. Our market share just continued to grow. So I think the thing about radio is good enough business. People are not very forgiving of a personalized radio experience. You have to really deliver a consistently good experience and if you don't people I think are impatient. Again, ultimately consumers decide this. I can say that till the cows come home. But we've had competition in the past. When we launched, AOL, Yahoo! and MSN all had very large internet radio properties. They had personalized products. We just did it way, way better and now we've got eight years of added innovation and data and so on to make it even better. I think that's really where our confidence comes from.

Heath Terry

One question in the back and then it will have to be our last one.

Unidentified Analyst

Hi. I was wondering if you could speak a little bit on the performing rights process. Speak a little bit about why you think competitors or other parties have chosen to go the direct route and why you at least to date haven’t and whether that's a prospect going forward?

Tim Westergren

So in the case of Apple there is a very particular reason, which is the way the law is written right now, the royalty rate that we avail ourselves out is stated as the greater of, of per song fee of 25% of your overall revenue. So to use Pandora's royalty rate, you have to pay the greater of those two. Needless to say that's not an attractive deal for someone like Apple. So in order to get outside of that 25% rate, they had deal direct. So that forced them into this direct deal category. Direct deals are not something that we’re allergic to. It’s just there’s been no history yet in this industry of people striking reasonable direct deals.

We're constantly monitoring that to see if it changes. But right now we feel like all the benchmarks being set, indirect deals are generally good news for narrowing the potential outcomes in the statutory realm. And the key for us about statutory licenses is that it's a one-stop-shop to get the ability to play all the music that we want to play. And a distinctive competence of Pandora is playing music you've never heard before, much of which comes from labels that are not or artists that are not on established labels, folks for whom it would be very difficult to go get direct licenses from.

So it has two benefits, statutory license is so important. One, it facilitate one stop simplified licensing. But number two, it guarantees inclusion of a huge long tail of music that if it wasn't in a direct license world, no one would bother with it. But at Pandora we get to play all that stuff. And I think that’s what people delight in in Pandora frankly is consistently finding songs they’ve never heard before, including I think the band, this radio station we’re listening to was seeded from a band called Lord. I doubt many people know them here.

A little perk to that, in 2012 there were 10,000 artists on Pandora that played to at least 250,000 unique listeners in the course of that year. The median audience for those 10,000 was 750,000. Of those 10,000 artists, half played on no other form of radio that same year. So these are artists that are essentially invisible, but on Pandora they're actually reaching a big audience. I think that’s such a core part of our value proposition. I think it's so key to a healthy long-term music business and it relies on compulsory licensing. So we're big fans of that.

Heath Terry

Great. Tim, really appreciate you taking the time. Dom, thanks for being here.

Tim Westergren

Thanks.

Dominic Paschel

Thank you.

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Source: Pandora Media's Management Present at the Goldman Sachs 22nd Annual Communacopia Conference (Transcript)
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