Pandora Media, Inc. (NYSE:P)
UBS 41st Annual Global Media & Communications Conference
December 9, 2013 11:00 AM ET
Dominic Paschel - Vice President, Investor Relations
Eric Sheridan - UBS
Eric Sheridan - UBS
Okay. Great. So morning everybody. My name is Eric Sheridan. I’m the U.S. internet and interactive entertainment analyst here at UBS. And it’s our pleasure today to have Dominic Paschel, Vice President, Investor Relations for Pandora Media here today. Dominic joined Pandora three years ago and before that was at SuccessFactors and salesforce.com, and he has helped a number of companies come public over the last couple of years, including Pandora. And it’s our pleasure to have Dominic here today.
Great. Thanks, Eric.
Eric Sheridan - UBS
So, Dominic, let me just kick it off, we will start at 30,000 feet and talk a little bit about what Pandora thinks about its addressable market, combination of both the audio, the local advertising, display advertising, all the things that Pandora’s [sort of scaling] [ph] after as a business opportunity?
That’s great. Thank you guys for coming today. When we look at Pandora addressable market, we are essentially redefining radio for a connected world. That is our sole singular passion goal and product focus.
When you look at the $427 million we did last year, the vast majority of that was derived from the digital media interactive side, so basically the Internet side of the world. We gauged that to be roughly a $20 billion market in and of itself excluding search.
Then you’ve to add on top of that kind of the burgeoning mobile bucket that has anywhere from a market sizing I think it’s going to be $7.7 billion this year, according to e-Market or up from about $3.5 billion last year.
Pandora has a foundational role in terms of the thought leadership that’s taking place in the advent of the mobile world. Pandora alone generates one of very unique or rather is one of very few unique players to generate more than $100 million in mobile revenue, last quarter we grew that 58% up to $133 million in the quarter from mobile revenues. We are third only to Facebook and to Google, and generally we’re only monetizing in one country versus the other two.
And then I think the final pool of money that we are attempting to go after is that of local broadcast radio. The technology that Pandora is bring with the advent of the Internet is ultimately one that will disrupt the likes of Clear Channel, Cumulus, Citadel, that’s the pool of money that is roughly $15 billion. So when you combine that - in the U.S. that would be roughly a [$15] [ph] billion market opportunity and one that we are just beginning to scratch the surface on today.
Eric Sheridan - UBS
So, I guess, one of the things we talk about a fair bit in writing about the Internet and Internet services and channel is personalization, targeting, we are moving to this world where everybody’s experiences can be tailored and unique and can be targeted at. Pandora sits uniquely in that sort of position, given how much information people share about their likes and dislikes?
Eric Sheridan - UBS
Maybe talk a little bit about how Pandora addresses that as an opportunity and what it means for usage and the product long-term?
Sure. There are two different constituencies I think when we look at, the strong word that we generally have in any type of marketing which is personalization. So, first and foremost, it starts with the user, how do we personalize music to your taste, to your wants and music is highly personal.
Oftentimes we don’t actually want to share everything we are listening to. We have the different odd choices of music sometimes. And what Pandora allows us to do is we take the data now upwards of 30 billion elements of feedback, thumbs up, thumbs down that ultimately helped to marry the best of the Internet and personalization, the unique one-to-one aspect of customization with the best of broadcast radio, which is free ad support to the consumer, zero work, discovery and ubiquity.
And so from a consumer standpoint that has ultimately allowed for us to create one of the most widely adopted applications in the United States. Obviously a top two, if you look at second only to Facebook in terms of comScore Total Universe usage that is aggregated through multiple sites, Pandora is one that is activated on one out of every two smartphones. So obviously that’s allowed for Pandora doing on the scale of 1.5 billion hours a month now, which is tremendous, tremendous scale.
On the other side of the equation we have the advertisers and ultimately how can we allow for the advertiser to effectively communicate with their target demographics, their target audience. And Pandora provides one of the unique venues where you have that log in experience and so we have mentioned it on a number of our last few meetings and calls essentially, discussing about what does this is world mean in a world without cookies.
And so because we have that log in environment, because we know your thumb data we have your logged in data for your age, your gender, even your zip code matters, and that ultimately helps us give you the best radio experience, but then it also helps us given a very unique environment for advertisers to communicate with their target audiences as well.
Eric Sheridan - UBS
Yeah. Definitely the cookie environment is what we hear a lot of questions about this, how it will develop in the long run. The flipside of that for personalization is how you balance engagement versus the business model, sort of ad load, sort of the user experience, so how those Pandora go about thinking about striking that right balance and how has that evolved even over the last couple of years with mobile?
Right. And just to set the stage here a little bit, in terms of how we advertise, every time someone interacts thumbs up, thumbs down, it presents a visual, - it presents an opportunity for us to give a visual ad, that happens on average seven times in a given listener hour. On top of that we are doing on average about 2.5 audio spots per hour each spot can be of 15 second or 30 seconds.
And then finally upon more heavy user interaction upon station change, you might get a video ad. And so when you look at the CPMs associated with that on a premium direct basis, the visual ad opportunities can go for $5, $6, $7. The audio ads can range between $8 and $12 on a CPM basis and video can be anywhere from $15 to $25.
And so with those 10.5 ad opportunities to monetize, if we sold all them on a premium direct basis that would obviously drive one of our key metrics know as RPM or revenue per thousand hours north of $100. So today, the key difference between our monetization on desktop and mobile is really about a concept known as sell-through, ultimately how much of our inventory do we sell at a premium direct level directly to advertisers or their agencies.
So when you look at the mobile environment, we do, kind of – a lot of the progress we’ve seen in the growth of RPMs so they are now at $36 on an ad basis. Lot of that has been driven through kind of the increase of utilization of that inventory, more of it being sold direct, kind of, in the low 30s range versus prior about a year ago would have been in the low 20s range. That’s about 81% of our inventory falls into the mobile environment. So of the 1.5 billion hours, about 81% of that is coming from non-desktop PC environment.
Looking at the PC environment, where the remaining 19% of our consumption -- 19% of our hours are consumed, we monetize that at $60 range simply because our sell-through rate is effectively sold out for that amount of inventory, that being kind of 60% to 65% range.
So long answer to your easy question, how do you view the ad load and ultimately where does that go. Our ad load doesn’t need to necessarily increase in order for us to get past our target model RPM assumptions. This means our sell-through rate has to converge upon the same level of desktop.
That being said, we obviously have increased the ad load. Two and the half years ago we had no audio ads, on average today again we’re doing about 2.5 here in New York City, and you are in a prime demographic say 18 to 34. It’s likely that you could even be getting a maximum of six audio spots which would be still sub three minutes of ads when you look at that compared to broadcast radio.
Broadcast radio in New York City, was listening to Z100 in a cab, by the way, I don’t think I heard any music on the 15 minute ride over here but Z100, they would do anywhere from 13 to 15 minutes worth of ads.
Eric Sheridan - UBS
Okay. The last piece of that puzzle always seems to be measurement, attribution, so how you can prove it back to advertisers who interacted, how, what they did with that information online and offline. You’re talking about that opportunity for the company instead of what sort of processes you’re putting in place to produce that deliverable back to the advertising community around measurement?
Sure. And we have again two different kind of ad constituencies here, one of the more digital media interactive side and one of the broadcast radio. And they all -- each set has kind of unique requirements or wants or just perspective on where they came from. When you look at digital media interactive clearly we have the attribution data, we have click-through rates, was just talking with the Chief Operating Officer at Hotels Tonight. We’re one of their -- we’re their best referral source in terms of advertising for click-to-install apps. And the way they look at their key metrics is cost per first booking.
So we’re doing great things in a digital side that allows for what people would customarily be akin to in terms of that reporting. By the way in the mobile environment, we’re doing unique products that to be honest, don’t exist on the scale anywhere in the mobile world.
It could be per NBC’s The Voice where it’s you use the phone technology to add to your phone’s calendar. It could be for a local advertiser in San Francisco like a [Mities] [ph] Pizza where they click to install the pizza install or pizza ordering install application. And then if you look at more of the local radio advertiser, we’re essentially coming out of the dark ages when you think of the technology that the Internet is providing.
Before it was all based on sample sizing, it was based on spray and pray. So somebody in the z100 in New York, if you advertise on z100 and playing [inaudible] Honda on Route 22 in Northern New Jersey, did this for a while, two-thirds of the airspace would be essentially wasted. You wouldn’t go to buy a Honda vehicle in Northern New Jersey if you were in the Bronx. And so what you can do with Pandora from a targeting standpoint, you can use zip codes. You can chose your target age and gender demographics in the way the broadcast radio never ever had that ability to do. So for broadcasters and broadcast advertisers, it’s a whole new world.
Eric Sheridan - UBS
And I guess the last piece of that would be on the sales force side of it, sort of how you go to market, right, Dominic what you said it was quite interesting right, local radio was sold very differently to digital media. So maybe talk a little bit about the going to the market strategy from a sales force perspective or how you sell [inaudible] product?
Yeah. And local is our fastest growing piece of the business today. It shouldn’t be confused with hyper-local - micro local, meaning kind of like mom and pop barber shops. These are regional advertising that spends millions of dollars annually. And so when you look at our local approach, it was five-step process that has been under way for essentially our inception.
Over the last two years though it’s really gained critical mass as the key piece of the puzzle started to fall in place. First was undisputed market leadership. We needed to be ranked the number one station based on AQH cume rating data in New York City, in Chicago, in Los Angeles, and San Diego.
And so once we have that undisputed market leadership, which we do and now more than 8.4% of radio, it allowed for us to set in motion the other pieces which were being done concurrently to get measurement by one of the foundational partners to cover Internet radio known as Triton. Triton, kind of, is becoming the name sake of internet radio measurement and they are at the forefront and kind of moving down towards the future where radio is headed.
The third piece of the puzzle was really integrating that Triton data into the ad buy side platforms known as STRATA and Mediaocean. We completed the STRATA integration in late January, early February and we completed the Mediaocean integration in late April, early May.
So now we are on the buy-side platforms, the way radio buyers purchase radio.
That being said, it’s not a self service portal, so there is still our people involved on both sides of the equation and that’s where we employed the fourth kind of step or key puzzle piece, which was to hire a local sales team. So we are hiring the best and the brightest, if you are generally speaking under a certain age and want to be involved in the future of radio, you are coming to Pandora.
And we are now in 29 local markets, 29 of the top 50, with a little over 80 sales folks that are focused on those local markets. I think we are seeing tremendous things out of them. I was up in our Portland office, little about a month ago and I was having lunch with our team up there of about five people. And the commonality of the stories -- I mean Chicago, which I will be in tomorrow, or Portland or New York City is their friends are asking them how do they get jobs at Pandora. They are friends that [earned] [ph] radio because I think they understand and ultimately you’ve seen this in every form of media when the Internet is involved, there is this massive disruption brought on par because of the Internet. I think the reason why radio is one of the last forms of media to kind of go through that transition is only today’s Internet connectivity becoming as pervasive as radio is, and arguably it’s in places now where you wouldn’t get radio wave, so flying on Virgin America 35,000 feet up I can now get my Pandora Christmas station.
Eric Sheridan - UBS
Okay. I think that’s a good segue, because I think one of the big opportunities for the company, that gets written up about a lot is of the auto industry, you know how much time the average American spends in their car that seems to be a place where there is obviously a lot of listening choices people can make with respect to audio. Maybe talk about auto, sort of what that opportunity is, sort of how it might differ from what you’ve gone to market with to date in sort of mobile and desktop?
Yeah. The auto industry is very much kind of a fall of the leader industry. Our CEO and Chairman Emeritus spent 20-plus years in the auto industry and so we learned many, many valuable bookings from Joe regarding that very unique industry. And so that allowed us to make tremendous traction.
Last May, we announced being in more than 100 different models of cars that are hitting the roadway today, that’s roughly a third of our models being sold in the U.S. in 2013. At the time, we talked about having 2.5 million unique activations, we will likely save any updates on specific to the auto metrics for next month, as we kickoff a pretty big week in Las Vegas at the Consumer Electronic Show starting on January 6th. But needless to say, Pandora’s inclusion into wired cars or infotainment systems, we have been very, very pleased with just the amount of adoption that we’ve seen there. Ultimately, consumer electronics makers are using Pandora to help sell their product and I think the A.V. team is going to play -- a one that Honda is currently using and it just hit the air waves now.
So the rearview camera is important for safety. Pandora is important for finding. So and these are the types of advertising that you start to see -- like we can’t even keep track of a lot of different ads that hit the air waves because Pandora is used as a differentiator of their product.
Honda was a little bit later on the adoption curve. However, they went all in, so basically it was a first auto maker to launch Pandora pretty wide in their cars. So we are very happy to have them as a partner. We don’t pay for these types of advertising. Again, they do it as a way to show kind of the way they are forward-looking in terms of where technology is headed for the cars as well.
Eric Sheridan - UBS
Great. Okay. And one of the big opportunities is international that you mentioned at the beginning that most of the revenue still comes from inside the United States, maybe talk about how you think about the opportunities, overseas you just recently launched in Australia and New Zealand. So think about sort of the competitive landscape globally what the opportunity might be for Pandora?
Yeah. We have always looked at Pandora as a global company. The royalty challenges though that exist, there is no one global entity that arbitrates different types of rates that are set on a compulsory basis. In the U.S., we worked through the Copyright Royalty Board every five years to set those rates. There are two types of rights organization. There is SoundExchange for the performance rights side, that’s where the vast majority of our cost of content goes to. And then there are the PROs for the publishing rights for the lyrics.
In Australia and New Zealand, we are very happy to -- last December marked our five-year reentry because I think that’s the way to phrase it. Essentially, five-years ago, we shut down all external IP addresses coming from outside the United States. All you needed at the time was just U.S. zip code. So many of you guys probably heard me tell the story before, but our most popular zip code outside the U.S. was 90210. It made sense to -- they knew that they can get in their service outlay.
One year ago, we kind of marked our reentry in Australia and New Zealand and we’ve been very pleased with the process and the size at which we are going. We have some statistics on Tim’s next visit he’ll be given out. But needless to say, our best way to sum it up is that our progress in Australia, New Zealand is exceeding at a faster rate than in the U.S. if you population adjust for the $27 million addressable market in Australia, New Zealand.
So, the way we look at international opportunities, we are patiently opportunistic. We know that ultimately we would love to bring the Pandora service to all parts of the world, had we not stopped walking IP addresses, data suggest that we would be approaching near a billion users.
The nice thing about the technology is that we can essentially just flip a switch and be active in a country wants any of the agreements we have worked out and then the technology is also awesome in the sense that we actually cars that are now rolling out in Australia. So Holden was the first automaker to role Pandora out in the car in Australia as well.
Eric Sheridan - UBS
One of the other thing you have experimented within the past is listing our limits, where you made decisions to put them on and take them off depending on sort of certain points in the company’s history? Maybe help us understand what’s caused you to do it, what you’ve learned from when you pad it on and sort of how it informs the view about the balance to be struck going forward?
Sure. The interesting thing of the -- my many conversations with many of you over the last two and a half years of, since we have been public a traded company. I think the initial impression, at least from some of the financial press turned the initial coverage of our IPO was that we are victim to our listeners hours that we were, on this runaway treadmill.
That was a conscious investment on our part and on your part by shareholders. We knew we wanted undisputed scale and so as a part of that we let hours grow unabated. We let hours grow in a way that we knew it would ultimately help our AQH our culminant team scores.
In two times in our history we have instituted listener hour limitations, once in July of 2009 and on our desktop environment and we released those in September of 2012, and then we instituted them on the mobile environment in March of this year and we released them on September 1st of this year.
Now the decision or the thought process to play out there for both kind of limitations when they are implemented were to allow us to reinvest the dollars saved there into other areas of the business that could help continue propel our growth forward.
And so what also informed our decision and to release those hours limitations were as we reached certain financial targets, notably the RPM statistic. At a certain point when you do the math above the certain range of an RPM we preferred be almost to be ad supportive because the contribution margin is greater.
And so on, in the mobile environment over the last eight months we made tremendous progress, again up to $36 in terms of RPM on an ad supported basis. A year ago that number would have been in the range of 23 to 25 depending if you look at second quarter or third quarter. And so when you look at our cost of content, our LPM as we call it, that was about $20 one day.
And so in that situation you are really only making somewhere between $3 and $5 per listener hour from the gross margin perspective and so if our RPM on the subscriber’s hire which it was, about $50 level, even though our cost of content is also higher for subscriber about $34 or $35 LPM, you can see the difference between the contribution margins. You have one that was at -- basically $5, you have another $15 but it doesn’t take a lot of math to calculate but as you ad RPM starts to rise, the contribution margin gets greater and greater and greater for you as an ad-supportive user. So at that we reach a point of indifference of about $35.
And so that ultimately informed us or informed our decision rather to release the listener hour cap on mobile. I think a lot of other people size it up to be from a competitive standpoint, but the reality was it was related to achieving certain financial targets we had in mind.
Eric Sheridan - UBS
Okay. Last thing on the product side, on the subscriber I use Pandora one, I just choose to pay my $36 a year…
Eric Sheridan - UBS
…and that have the ad load. And any sense how that product is continuing to grow, how it’s fits into the mix of overall listener-ship and over subscriber trends?
Right. And just reminding everyone of the some of the key tenants radios, free add supported to the consumer. We loved the visibility of the subscription business, subscription business for this year is $100 million business in an itself.
But fundamentally due to the able to appeal to the 93% of the U.S. population that listen to radio on a weekly basis, it has to be free ad supportive with the consumer. And to be free ad supported this consumer that means, I think, essentially the viewer subscribers are that if we want as an alternative, you are not liking the advertising. For the first half of this year it definitely helped to -- helped us achieve and continue to gain on our financial momentum, this is going to be slightly elevated this year about 20% of revenue.
We would expect that to be more in normalized range of 13% to 15% going forward. But at the end of the day, most consumers aren’t willing to give up even at $399 a month, its still more expensive in the vast majority of consumers are willing to pay.
Eric Sheridan - UBS
Okay. Okay. What are the other topics that comes up with Pandora lot is competition? There has been multiple ways of competition in the internet radio going all the way back to the early days of AOL and Yahoo!, it’s for those products.
Let me talk about where we’ve come to the lifecycle of competition, where we sit today. Obviously, Apple, Google Play and Spotify have gained some headlines over the last 12 months and sort of how they are placed in the Pandora’s business model and thoughts about the way its going to evolve going forward.
Yeah, its topic near to get in my heart, it’s a little bit like ground hot day every three months for me. As I spend 48 hours on the phone trying to help people understand, why it’s not a Pandora killer. When you look at the form -- when you look at consumption of audio, roughly 80% takes place in the lean back environment, 20% takes place in a lean forward. I want to be in charge at my musical destiny and journey.
And it doesn’t mean nearly they are one or the other, just means different parts of your life, consume music in that fashion or form. It’s a lot easier to physically differentiate those forms of media in the decade prior, you had radio and you had vinyl records. You had radio and you had 8-tracks in the 70s; you had radio, cassette tapes in the 80s; 90s, you had radio and CDs.
Then enter 1999, 2000, the advent of Napster and the world became digitized. Unfortunately or fortunately, fortunately for Pandora, unfortunately for Perceptions, that digitization made everyone seem like, everyone is all of a sudden competitive. We fundamentally believe we are complementary to own music or own demand music. And so we view our primary competition as broadcast radio.
So you only have x number of hours on a day and ultimately you have to decide how you’re going to use those hours in consumption of media. But we fundamentally see that 92% of U.S. population still hear us on radio on a weekly basis and that’s where we go after from the addressable market.
Often times, I think people view radio -- internet radio features as directly competitive. And that’s kind of a key descriptor is that for Apple or for Spotify. Often times the radio feature is used as an on-ramp to get the consumer to another destiny, which is to become a subscriber or to download music.
With Pandora, we’re a top referral by the way to own purchase music -- own music purchases through both Amazon and iTunes. We view internet radio not as a on-ramp but as the free way, as the main reason for being there. And I think, those perceptions and those areas of focus are reflected in the product quality and ultimately the usage.
Eric Sheridan - UBS
And then more importantly, we talked a fair bit also about the internet of things, the proliferation of devices that will be broadcasting things for certain time whether its smart watches or Google Glass or things like that. How does sort of Pandora’s role through the daily habits plays to that seem longer term?
Yeah. And the AB team has one more shiny object to show up here in a minute. As they get back ready, we look at the internet of things. Pandora is on the forefront of the internet of things. The beauty of music is that you can consume it, generally speaking in many, many different areas of your life, all the way from we have Pandora included in televisions and refrigerators, Chromecast is -- as all my family, they are getting Chromecasts for the holidays, I love that little device.
And the internet of things now consumes about 13% of Pandora’s total hours. So coming from a non-tablet, non-PC, non-smart phone device, ultimately, as we think -- because this community and consistency talks a lot about the mobile manipulation, mobile revenues at a feeling that in next two to three years, our mind is going to shift a lot towards the internet of things as many people are now calling it.
And I think, they have a video that you can push play-on that actually shows again the power of using Pandora since particularly 2008. I think this is…
So I think that was actually one of the things least covered at CES last year, that was pretty interesting. It was kind of like the HTML5-enabled televisions. We haven’t even started to contemplate as a group over here that the power of that 55-inch television screen and high-definition video ads where that could -- where that potential take you. So the beauty of Pandora is that music has a part in every aspect that you like.
Eric Sheridan - UBS
And then that thus tells to some of the sharing functionality within Pandora which sort of makes it a social element as well. The ability to sort of ship -- share what you’re listening to your likes and dislikes. Maybe talk about some other partnerships around social and how Pandora. So they could derive further value from the consumer experience by things that occur off Pandora through sharing?
Yeah. I don’t know if the AB team can click on music feeds on my Pandora that’s currently up. Music feeds will further down to the right to left. Its okay, take it one more over.
Eric Sheridan - UBS
One more over?
Here you go. You can actually see how we integrate today with social services -- social media services and we do in a way that’s very thorough like in the sense of again -- your musical journey often times is private. You don’t want people to know that. Pandora was one of the first to integrate in the Facebook. We did it with Facebook connect roughly four years ago I want to say. Something that I was already forgotten when Facebook did F8 and everyone got we were noticeably absent.
One of the reasons we were noticeably absent is because our view on sharing was different from that of Facebook. We didn’t believe in the friction with speed, opt out actually at the time we could launched in September of 2012, there wasn’t an opt out. So if you can all recall, you probably got a lot of Spotify and iHeartRadio. Auto feeds coming in almost some -- I think the spider host pace. And that was one of the reason why we waited now about six months ago we integrated into the friction with speed because it was an opt-in feature.
So for us privacy is very important for our users. Music is a very personal journey. And so from an over social status, you are quite to share like I am. You can tweet, you can facebook, you can do everything you want relating to your music selection or choice or discovery. But another concept not often discussed as it relates to social and Pandora to literally power of the algorithms. And so almost your musical graph and the sense of why this Pandora, going back a little bit to the competition side. We entered into the market when there was Yahoo!, AOL, and Microsoft.
Why didn’t our algorithms and our personalization technology come at long to ultimately make Pandora the name sake of internet radio because of that social component. So the way the algorithms are different is we’re taking everyone of your age, your gender even your zip code to help refine the algorithms in a more powerful state, more powerful fashion and that’s a wickedly hard problem to solve.
So that we warrant to 36 months ago when somebody was looking for, We Are Young by Fun and might have been a SoHo New York hipster, which is were kind of bit version of the bond started, we’ve been searching for it. And so they would have had a different perspective on what they would expect for the next song to play.
Then fast-forwards when it was played on Super Bowl or Super Bowl commercial, you have a different set of expectations for the algorithms that comes from the next song. And then finally fast-forward to the first time it was covered on Glee, a total different expectation set for the users. We have to be able to maintain those and that’s the real power and social for Pandora.
Eric Sheridan - UBS
Understood. Yeah. No, it is interesting to what you know feed change over time for Pandora and so. One more question before I turn it over to the audience. Just margins -- all Internet companies are sort of faced with the struggle to balance product innovation, revenue growth, chasing those terms with the desire by the public markets for margin improvement. And then also in your case obviously royalty fees or add another element to the margin component, maybe talk a little bit – management, the Board, how they think about that margin balance to be struck and so how the royalty debate discussions sort of fits into that as well?
Right. We definitely have a respect for profitability unlike other internet properties and companies in the sense. Our structure is absolutely different because we do have the cost of content line that now is 48% of revenue last year. We continued to gain gross margin leverage which we are very happy, but I mean the model is working that means our RPMs continued to grow at a faster rate than the LPM cost. That being said, it also reflected and it was the first time in our model in Mine as Pandora to be able to reinvest that into things that can help drive topline even further.
Because our content is not user generated like Twitter and Facebook and others, we’ve had less revenue to reinvest in the business until recently. And so yes, Pandora is nearly seven-years old but only now we have regain the scale to drive the ad dollars at a faster rate than the cost. And so we are taking that opportunity to reinvest in the near-term in what we believe will ultimately be a bigger revenue if I will.
Eric Sheridan - UBS
Maybe, I’ll open it up for questions if any ones got from the audience? Come on upfront.
So, I’m curious with the geo targeting, why you guys use zip code instead of IP address, number one? And number two, do you guys plan on asking -- you just updated their zip code, I mean, mine on Pandora I think at this point like six-years old and it is not reflective of where we are today.
Okay. No, it’s a great observation. We currently do not use geolocation data, simply because it’s still a conversation that is taking place from a public policy perspective. I would argue that kind of dream in the sky of driving down on 101 and being five miles away from out burger that is my dream to have just like two for one deal. But I get that the social conversation that hasn’t fully played out yet.
That being said, the targeting data we do have often times very lessen of 5% airway in terms of the -- there are other ways we can kind of chew up that data. But you are right, it isn’t user driven and right now that’s the level of comfort we have. I think as social constructs, it ultimately developed where do you don’t mind getting that and real time, we will be right there to benefit from it.
As you go up after the auto opportunity, can you talk about how you feel that you are competitive with satellite radio and also can you talk to your content strategy as you are going to stream using new zip code or do you intend to move into sports talk, other things to further compete?
Sure. When we look at the content we have, we currently have music and we have comedy as they are kind of the two areas of that we focused on. When you look at the amount of radio, so on average a user in the U.S. listens 56 hours to broadcast radio, about half of that is in the car. Of the type of content, they get roughly 80% of it is music, 20% is talk, sports, news, weather, traffic. And we are not necessarily adverse to going into anyone of those ones of content, it is just -- we want to figure out how can we Pandorize that content, how can we personalize it, say in another way?
And with comedy we have been able to do that with the Comedy Genome Project and so we will continue to evaluate different opportunities. I wouldn’t look at Pandora making the big, kind of Sirius XM place for talent that cost $400 million. It is just not value creating to us and our shareholders, we believe, at the end of the day. But if there are ways to Pandorize different types of content we will -- we currently are evaluating how to do that, whether it’s podcasts or otherwise.
On the auto front, can you talk a little bit about what role that might play in customer acquisition and to what extent connective car requires -- Pandora connectivity requires a Pandora subscription already? So are you getting new customers through that, or is it just more value for existing subscribers? And then also in the future, when might we see a Wi-Fi enabled car with Pandora built in and every month’s subscription for free in the same way Sirius has it?
So a couple of points here, you don’t need to be a Pandora One subscriber, you need to be a user but not a subscriber, so can be ad supportive to be in the car. Right now, you tether, we are kind of on generation two of Pandora in the car. Gen One, where we can kind of lean forward where you plug in your smartphone or Bluetooth it to your car, and that was very much a lean behavior.
Phase 2, are kind of what I referenced in the infotainment systems. So, for Toyota, it is the Entune System, for BMW it BMW Apps, for Cadillac it is the Cue system. Those tether to your smartphone to one in a Bluetooth environment, but they command and control motion of the smartphone into the car. It streams on your smartphone. Now, I think the first pair anyone thinks of is what are my data costs are going to be? When we stream at 32 kilobits per second, which is 14 megabytes per hour? So if you listen to all of what is consumed in a broadcast radio on your smartphone in the car, it is less than a third of the gig that would be used on a monthly basis, so very efficient bit rates.
When you look at generation three of Pandora in the car, I think it is very much reflective of what a lot of the automakers, I think it was General Motors Auto Boss that was in Barcelona last March talking about connected car. So, I think that’s proceeding in a much faster rate and I think those cars as he expressed would start to hit showroom floors in mid-2014 for the 2015 models.
In there, the car would itself would have a connected chip, not just for Pandora, but I think Pandora would be a more of a prime beneficiaries of that technological evolution. And in the price, the data plans will likely be similar to way of friends and family. You have family devices, you see on your smartphone, or on your tablet, your General Motors MyLink.
Eric Sheridan - UBS
All right. I think that leaves us out of time. So we thank, Dominic for being here today.
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