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Pandora Media, Inc (NYSE:P)

Cowen & Company Technology, Media & Telecom Conference Call

May 28, 2014 08:00 AM ET

Executives

Dominic Paschel – Vice President-Finance and Investor Relations

Analysts

John R Blackledge – Cowen & Co. LLC

John R Blackledge – Cowen & Co. LLC

Good morning, everyone and welcome to the conference today. We are happy to have Dominic Paschel, VP and Director of Investor Relations at Pandora. For those of you that don’t know Dom, he is a seasoned tech executive with a background at salesforce.com and SuccessFactors which he helped to take public. Dom has been at Pandora since 2011. So thanks again for coming Dom, I appreciate it.

Dominic Paschel

Yes, thanks John for having me. I am a little sad, because I’m going to miss Aloe who is going to be in our office today, unfortunately. Aloe Blacc, The Man song. He also does the other one that dollar, dollar, dollar bill. I am not a good singer, so…

John R Blackledge – Cowen & Co. LLC

You'd rather be here in New York.

Dominic Paschel

Yes, yes, I would.

John R Blackledge – Cowen & Co. LLC

All right.

Dominic Paschel

Another time, maybe.

John R Blackledge – Cowen & Co. LLC

Yes. Maybe to kick it off, first quarter, you guys had a great quarter of revenue. Ad revenue grew 45%, it was year-over-year, it was up off fourth quarter growth levels. It beat the street. Maybe you can discuss some of the key drivers there in the sense of kind of mobile local spot loads, pricing and then you guys also gave guidance for the second quarter. I think at the mid point of total revenue growth of 40%. Talk about that and any trends that we’ve seen thus far in the quarter.

Dominic Paschel

Yes. By all accounts Q1 was a very strong quarter across all metrics of growth. User metrics, user engagement Pandora reached an all time high engagement level, when you look at how many active users Pandora has, we have 76 million active users that are on average streaming about 22 hours of music per month. That’s up from at the time of the IPO doing about 15 hours and probably close to 45 million monthly active users.

We’ve now surpassed a quarter of the billion registered users in the United States which is the largest and one of the largest user bases in the U.S. from a pure logged-in environment. So that means we have your age, your gender, your ZIP Code. It’s very unique to have that level of registered user base. Very few web properties have that. When you look at the revenue, which as John said, our revenue grew more than 56% in the first quarter, when you look at that reached an all time high from the first quarter perspective of $180 million. A big driver of that revenue growth was really around mobile, mobile composed about $137 million of that. Mobile in particular grew 92% year-over-year, and then another large component, or component that is becoming larger would be our local revenue.

Local grew 230% and now composes 20% of ad revenue, advertisers like BMW of San Francisco here that you see on screen, that’s up from about 10% in the prior Q1. So, mobile local are big components of Pandora’s revenue at this point.

John R Blackledge – Cowen & Co. LLC

In the second quarter, I think the guidance was total revenue growth of 40%. Can you talk about some of the trends?

Dominic Paschel

Sure, as it relates to our growth numbers on the overall revenue, we are lapping a one year where in order to optimize some of the financial model, we implemented and pulled different levers of the business, so we implemented a 40 hour cap if you recall last March and so that controlled the denominator component as you look at RPMs. It also drove subscription revenue at a very rapid rate. So if you were one of the 4% of users that were affected by the 40 hour cap on mobile, it would be a catalyst to get you to become a subscriber or to essentially stop listening or meter your listening over the course of the month.

We believe that to be a wise governor as we needed to control cost in order for the monetization to catch up to just explosive listener hour growth that we’ve – that has occurred over the last four years. But that catalyst caused subscription revenue to rise in the second quarter last year 151%. When you at look at subscription revenue over the course of the entire year it grew 135%. So as we lap that 12-month period you see revenue growth from an optics perspective goes from 56% down to about kind of the high 30% growth range. But when you look at the core advertising revenue growth it continues to grow consistently and strong at about 40% with some implied reacceleration in the second half of the year.

So as we’ve optimized different components of the financial model it’s good to have that background to understand the variables at play.

John R Blackledge – Cowen & Co. LLC

It’s great. Maybe we could – you talked a little bit about the user metrics, but two of the key ones obviously active users and listening hours. Now listening hours as you mentioned have been accelerating in April, they are around 23 hours per user per month and it seems to kind of step up, it seems to have kind of stepped up over the last couple of years. Terrestrial Radio is at 56 hours per user per month maybe you can talk about how Pandora is driving towards that Terrestrial number if you think you can get there and kind of the trajectory as we head through the course of the year in terms of hours and maybe over time?

Dominic Paschel

Sure, and acknowledging that was probably one of the bigger concerns this quarter was for the first time Pandora’s active user count in the month of March didn’t exceed that of the high watermark set in December. And we would view that perhaps as a new emerging seasonality that we are seeing particularly in the fourth quarter. When you look at Pandora’s usage we are doing now on average 1.7 billion hours a month which is huge. When you think in the U.S. that is larger than the amount of time of video streamed on YouTube in the U.S., which is a pretty dramatic number.

And so when you look at the engagement of our users in particular the actives, the actives you are seeing in December a function of the high watermark perhaps being set higher and higher and that has to do with more and more of our consumption is taking place in a medium that you guys know as the Internet of Things.

And so in December in particular a lot of gifts are given out. It can be Smart TVs, it can be Roku devices, it can be Chromecasts and it has even developed even further into the Internet of Things with now Pandora is available on the Pebble, so wearable technology. And so as those gifts are given out the active user count obviously spikes in the fourth quarter per traditional, but I would argue that that watermark is getting set higher and higher. It doesn’t mean that we will not continue to grow active, it just means that it may take longer within the year to grow that number versus by March.

When we look at our addressable market, we believe it is the 240 million people that listen to radio on a weekly basis that’s 93% of the population. On average they are listening John as you said 13 hours a week which is about 56 hours a month. Today Pandora’s record level of engagement is 22, 23 hours per month, continues to grow and that’s a function of us getting more pervasive through every aspect of the consumers life all the way down to now a jacuzzi that has Pandora embedded, which is pretty cool.

And as we get more embedded within every aspect of your life, as the world becomes more and more connected place that allows for us to mirror one of the key characteristics of radio which is connectivity and simplicity. I was visiting with our Kansas City team, local sales team, and I didn’t realize this, but Google already, Google fibered Kansas City.

So even different social economic backgrounds now have access to the internet even if it would have otherwise been cost prohibitive. So actives will continue to grow, again we want the 240 million people in U.S. listen to radio on a weekly basis. So our number can easily surpass the 100. If you look at smartphone adoption, we generally have been activated on one out of every two smartphones in the U.S., we are not even preinstalled, it’s a consumer going to install Pandora. And eMarketer I think has that figure at about 260 million estimated by the end of 2016. So if that holds true that should put us at about 130 million actives simply based off of the connectivity and the historical activation of Pandora on your smartphone.

John R Blackledge – Cowen & Co. LLC

That’s great. I think one of the big opportunities at 23 hours per user per month, a big opportunity for Pandora and you guys have been working on it for years is the in-car opportunity, right. That’s a big portion of Terrestrials Radio listening. So maybe you can talk about as we think about the 23 hours a month, 56 for Terrestrial, the in-car opportunity what you guys have done, where you are at right now, and where potentially it can go?

Dominic Paschel

The result of Pandora’s activations in the car is really the combination of eight years of work that our business development team has committed both to the automakers and to Pandora, you see one of them on screen here, you see the MINI Cooper. That was actually one of the three original models to have Pandora back at CES in 2011 which was the January I joined the company to work on the initial public offering. So we had the MINI Cooper, we had the Mercedes S Class and we had the Ford Escape, so just three vehicles. Over the course of the last three years Pandora has now become embedded into more than 135 different models of cars. Essentially, almost every major automaker now has Pandora and what was originally for those three automakers a competitive advantage, it is almost becoming a competitive disadvantage if you do not have Pandora embedded within your vehicle.

And so music is a very important part of people’s lives. And when you think about how much time is spent in the car, it is not surprising that half of the 56 hours of radio is consumed in the car. It is a little bit different obviously here in New York City, but I was in Los Angeles last week on Monday. The commute time there I think the average is somewhere around 45 minutes to an hour, same in Silicon Valley. And so it’s an important function of consumption of radio. When you look at the different phases of our auto implementation, really phase I was you, as consumers, you would plug in your smartphone, you would Bluetooth it and you would control the command functions from your smartphone.

Phase II is what we speak to when we talk about a third of the cars now coming off of the U.S. auto fleet will have Pandora embedded. And those are ones that still tether to your smartphones, so it uses your data plan and don’t freak out and grab your wallet because it streams at a very efficient bit rate. Assume 32 kilobytes for per second, which is 14 megabytes per hour, that would mean in order to go through 1 gigabyte of data, you would have to listen to 70 hours of Pandora completely on your smartphone 4G, 3G connections.

And so that’s Phase II of the auto implementation. And we do know when you reside in the car, we know all the way down to the type of car and the model of the car. That’s the beauty of the internet. And in Phase II we are now just starting to roll out audio advertising, we won’t have digital opportunities because driver safety is very important to Pandora and you will have as pure naked audio ads basically or what we call them. We did that because we started to reach a new scale. So we now have 5 million unique activations through one of these native integrations or through an aftermarket purchase through Audiovox, Samsung, Kenwood, a number of different providers of that.

And so when we look at how that grows, the fact that we are on a third of all cars being sold in the U.S., we look to essentially continue that roll out over the next seven years. If you think the average replacement cycle for a car for the U.S. auto fleet is about one every seven years. It will take that long likely to roll out to the vast majority of new vehicles and for the U.S. auto population, but it’s a huge opportunity for Pandora. Again we just started in-car advertising in January, having great success there essentially it’s been sold out for the remaining portion of the year.

The ad load will naturally increase as it has across all our other mediums, but we don’t raise from having zero to now our maximum for certain demographics is six across desktop and mobile. You can’t just have that kind of delta all of a sudden, you have to gradually increase the ad load as we’ve done on Sonos and other platforms that Pandora is embedded on.

John R Blackledge – Cowen & Co. LLC

Right. And maybe on the ad load side, the difference in audio ad loads between in your smartphone or right your desktop versus in the car. In the car obviously for safety reasons, you are not going to have any visual display or video, will there be a difference in ad loads and if you can just remind everyone the cadence of audio ad loads over time, and compare I think Terrestrial Radio at 13 to 15 minutes, you guys probably take 50 years to get there for you guys or something like that.

Dominic Paschel

We won’t ever need to get to the level of Terrestrial Radio, simply because Terrestrial Radio has taken the consumers as a captured boat and to some degree abused the consumer within that environment because there was nothing else for them to really listen to and they chased every last dollar down. What Pandora has the benefit from the technology as you see, we have the opportunity to monetize visually, from an audio perspective as well as from a video perspective we’ll come back to the car in a second.

Just stepping back and looking at how do we monetize an hour, you have to look at those kind of three categories. We have about a 120 SKUs, so we bundle different things, but those essentially are the three major categories of ads that you can buy on Pandora. On average the consumer interacts thumbs up, thumbs down, skips a song, changes the station, reads station details, looks on the newsfeed about seven times an hour, so that presents seven visual ad opportunities to monetize from a display perspective.

On average on the audio side we are now doing average audio ad load of about 2.5 to 3, that’s up from 2 to 2.5 in 2012 and we’d probably expect that to rise between 3 and 3.5 spots through the course of this year. That’s up from zero, 3.5 years ago, as we started to introduce the audio ad side and the original buyers of the audio ads were digital buyers. Now as we talked about at the beginning of our discussion, 20% of ad revenue now comes from local, and so the local for us is radio, local has been a whole initiative in and of itself which I am sure you probably have a question on. But that allows us to monetize the audio opportunities, the maximum we’d having in any demographic or location is six audio ads that maximum is up from about four a year and a half ago.

And the finally the video opportunities we do upon a heavy user interaction like a station change, and we monetize all three of those inventories at different CPM levels, but one that when we sell them on a premium direct basis allow us to get to RPM that could easily rival that of radio, Terrestrial Radio at $73 per thousand hours, again with a minimal ad load from an audio perspective because we have other methodologies to monetize.

John R Blackledge – Cowen & Co. LLC

And then in the car, given that you are not going to have the display in video, how should we think about the spot loads and how should we think about monetization in RPMs layering in – the kind of the local national kind of mix.

Dominic Paschel

Right, and the car load will have, it will be audio centric, but it doesn’t take a lot of reaching to see how we can get to our $50 RPM in the target model and then well pass that on the Terrestrial levels of $70, which you can think about it is as you kind of break up the $15 billion radio ad market, you have the bottom $1 billion that essentially is network national with the lowest CPMs. You have above that $4 billion that would be spot national. Above that you have $6 billion that is spot local and then kind of the cream on the top, which is essentially what we are going after now with a lot of our local market initiatives is really a market known as the hyper-local market. And those CPMs obviously can be in the high-teens and even low 20’s. So if you would – how many hyper-local ads as it take to get to a $50 RPM, 2, 2.5. And so you can see how easy it is to get to an RPM that could rival broadcast at $73, if not greater than $100 RPM. Again a little more ad load fraction of the ad load.

John R Blackledge – Cowen & Co. LLC

Fraction of the ad load yes, that’s interesting. Maybe we could pivot over to the competitive landscape I mean there is always over the years; there has been so many headlines of all competition and the next Pandora killer and it’s interesting. You allowed us to host your chief scientist Eric Bieschke. I thought it was really interesting he was talking about the amount of listener data you have and obviously the scale in terms of users allowing Pandora to test 10, 15 algorithms at a time. To improve the listener experience and that’s really one of the competitive advantages. Maybe you can touch on that and just a competitive landscape and how you look at it and how you think you are positioned as you go forward.

Dominic Paschel

Yes, and Eric is brilliant. He was essentially the number three or number four employee at Pandora. He has been with us 14 years. So he came all the way from Savage Beast Technologies days before, and Savage Beast Technologies was the original company that was the origin of Pandora. Tim wanted to essentially map out the DNA of songs through a process known as – an undertaking called the Music Genome process. And so we would look at the DNA of songs anywhere from the 280 up to 450 attributes associated with those songs. And Eric was one of those original music analysts.

He has some crazy spiky hair, which is – that’s why we keep him on the calls because he scares people a little bit. But what he described on John’s call was really kind of a – he described essentially three different epochs of – not epic, but epoch of Pandora. Epoch 1 was really around the music genome, understanding the data that goes with kind of the DNA of songs, which was cool. No one had really done that before.

Epoch 2 was really around now taking that data, taking the DNA of songs and now combining them with the data of the users. And we did that in essentially one algorithm, which became the Pandora algorithm. As more and more users adopted Pandora, as the smartphone revolution took off and Pandora’s usage skyrocketed. We got tremendous amounts of data that every plateau of data he’d call it, we revealed new information, new insights of consumer behavior, new insight around the music genome about preferences all the way down to age, gender, even ZIP code very much mattered.

And then really Epoch 3 is this new dataset which from a competitive standpoint probably the least undervalued asset of Pandora is really the playlist technology. And so we now have more than 47 proprietary algorithms that we can switch between or you activate certain artificial intelligence within the Pandora environment that we move you around. And it’s fascinating because every time we reach a new level of data it opens even more insights for this data scientist team. We have quantum physicists now that actually work for us, people are really good with math essentially, work for the playlist team at Pandora.

And when you look at the insights that are breached every time, we break new thresholds, so it took the time we went public, it was six years into Pandora’s modern day Pandora. So pivoting from just Music Genome and CD recommendation technology, really taking that and creating a better personalized Internet radio, because at the time we had Yahoo, we had Microsoft, we had AOL, all that had products and Internet radio, I used to use.

At the time I used this kind of legit, so I would have Napster and then it would have – you know I had Launchcast. So when I wanted to know, what I wanted to hear, I would go to Napster, and before that when I was just studying for finals and I didn’t really want to spend a lot of time, trying to design my musical journey, or I would get bored with everything I had, I would go to Launchcast.

And so that still very much reflects the consumption pattern of the U.S. consumer, 80% still takes place in that lean back Internet radio style, 20% is really in the on demand world and you see a lot of players there. So one of the biggest challenges from a perception standpoint is differentiating the two markets given the fact that the physical differentiation is ceased.

And that stopped with the advent of MP3s and moving with the digitization of music because before you always had radio, you had physical own music category, you had vinyl records, 8-tracks, cassette tapes, CDs and with the digitization of music I think in our minds it just seems that if it all resides in a smartphone or a computer its all competitive. But when you look at the consumption pattern of the consumer, there is still very much retains those two distinct enjoyment patterns and one that Pandora focus on, is really about the 80% that’s consumed in a lean back radio style fashion and that’s where we think our playlisting technology is the best.

The fact that it took us, 10, it took us six years to get to the first 10 billion thumbs within nine months of the IPO we had reached 20 billion thumbs, now we are nearing in on 50 billion thumbs. And so every time we reach a new plateau of data, 50 billion might be even the new threshold, 100 billion will be the next one. We not only have the leads in terms of playlisting technology because of the network effect, we have an accelerating lead from a data perspective. So Epoch 3 of Pandora is the data.

John R Blackledge – Cowen & Co. LLC

Yes. And Eric was saying that given the users of 76 million users, you can test 1% or 2% of user, test algorithms across 1% or 2% of your user base, maybe for other services and iTunes radio we are not sure how many users they have, but that maybe 50% you would have surpassed our user base or something like that. So a significant portion, so…

Dominic Paschel

Just given our scale at having 76 million actives or a 250 million – more than 250 million registered, we test not only the playlisting technology, we can test ad loads, we can test new ad products, we can test any tweaks of the environment in a very small subset of the population which is less than 1% and anything we find that is well received, not well received we can adjust the playlisting technology based on that or say it’s a new feature we can roll it out much quicker. So one example of something that we tested on 1% that was widely adopted very quickly was the station recommendations. So now on Pandora mobile, if you go scroll all the way down to your station listing, keep going all the way to bottom you’ll have recommended station list. That when we rolled it out to 1% was very well-received and so we rolled it out probably one of the fastest product features ever. And so the beauty of just having a massive user base is that we can test things and optimize the environment very, very well.

John R Blackledge – Cowen & Co. LLC

That's great. And maybe just on one of your most recent points on the lay back versus on-demand. And if we could talk about Spotify as a competitive threat. It’s often mentioned in the press as a competitive threat to Pandora maybe you can describe the differences and what Pandora is doing versus what Spotify is doing?

Dominic Paschel

Yes, I’ll refer to the whole on-demand category as one. So there are a lot of players in that space, it’s very sexy. Dr. Dre and Jimmy Iovine, obviously with Beats that’s the topic du jour given the rumors that are circulating around Apple. I like Beats as a product. I have a pair of red because they match my shoes. And when you think of that environment, it’s because you want to control your musical destiny. I’ve always been generally pretty busy in life and so long before working at Pandora perhaps long after I know that I’m not a lean-in kind of person. If I want to hear a song on-demand, the number one music service for on-demand listening, anyone know what it is by chance? Calling on the audience. It is not Spotify, so I will give that away.

Number one on-demand, no, this is actually a product more to lean-back based out of Terres. SoundCloud, I love the product, but it’s a not SoundCloud, its YouTube. YouTube is free. And so when you look at the business models associated with on-demand versus Internet radio they’re different. We believe the ad market to be the best way to support consumption of Internet radio because you have to look at the four hallmarks of radio. One and most importantly it’s free, ad supported to the consumer.

Second zero work and actually those first to have the cyclical nature about them. Because in order for it to be free you needed to be ad-supported, in order to get ad-supported you need the scale. In order to have scale, you can’t require the consumer to do work; nothing beats free and zero work, nothing. And then you look at the other characteristics, hallmark characteristics of radio which is Ubiquity, which Pandora obviously has invested a lot of time, money and energy in over the last eight years, now that is exemplified by the fact that we’re in more than 1000 different models of consumer electronics devices, cars everything.

And then finally discovery, what we do is we marry that with the best of the internet which is personalization, engagement and one-to-one versus the kind of the unicast one-to-many. And we believe that to be fundamentally ad supported by a $50 billion market. When you look at the on-demand world, it’s not meant to be ad-supported. When you hear of the on-demand players going after ad dollars the better terminology would be set of ad supported, it should be ad subsidized. The models are completely different; we operate under a compulsory license that allows for us to play any music available for sale, so we derive our license often Section 114 of the Digital Millennium Copyright Act. Anybody who abides by those limitations, so you can’t hear us on-demand, you can’t skip more than roughly six times an hour per station, you won’t hear a given artist more than four times in a three-hour period. If you are a Section 114 compliant you can operate and you can create a true Pandora competitor.

The on demand players are not trying for that. They want to service essentially what is about an $8 billion or $9 billion own music category. And I really want them to be successful I mean as John mentioned my history is within kind of the transition from client server technology to cloud based software, that’s kind of what music is going through right now when you look at these cloud based services. Instead of the own music category, now it’s going to a subscription style model.

In 1999 with the advent of Napster, it did changed the format and it did change – it did radically alter how music was consumed and ultimately how it was paid for. But Steve Jobs had probably one of the longest lasting impacts on music beyond music category, which was essentially breaking the album. So you could buy one song versus 20.

The recording industry has been challenged by that for the last decade, only now are the revenue stream starting to grow again. And so when you look at that on demand category I think they are grabbling with how do you in the way we didn’t – with client server world with enterprise software. How do we all of the sudden replace kind of that large upfront fee and generate enough recurring revenue streams from an annuity model to replicate what will ultimately be cannibalized. And I think – I was asked to speculate to some degree, which is always dangerous about if Beats where to go through. Our belief is always been that Apple is looking to create a iTunes 2.0, if you look at iTunes radio it was just a step on the way. At the time iOS 7 launched it was one of 200 features. I think at the time at the Apple launch event last September they spend all of the minute on it.

It’s not a core product for them, it’s not a core competency for them, it was just another step along the journey of ultimately transitioning the iTunes business model to that of the subscription supported model.

John R Blackledge – Cowen & Co. LLC

Maybe if we couple other kind of big items, we have couple of minutes left I have maybe one or two more questions and then open it up to the audience. The upcoming – the current, content cost negotiations maybe if you can give us – to the extent that you can give us an update and kind of your view on how things may play out, it’s obviously a big issue financially for the company and for the industry?

Dominic Paschel

Sure, and I’ll cover it at a high level very briefly because that’s a whole topic that it can be spent an hour on. Pandora, as I mentioned drives its ability to play music as few other section 114 compliance services, internet radio services and as such rates are determined on a five-year period if your compliant can operate under a section 114. And those rates are set by the Copyright Royalty Board which sits under the Librarian of Congress. They do this for other industries too for cable and retransmission of local broadcast, they do this for Sirius XM. And so Pandora pays two types of royalties, we pay a sound recording royalty which is the largest chunk of our cost of content line, its about 92%. We pay that to half to the artist and roughly half to the label and that goes through sound exchange, its paid on a per track per play basis of about 14,000 of a cent per track per play. Then we also pay a performance royalty, which goes to the music composers, that in aggregate is about 4.3% of revenue across the PROs, which are known as performance rights organization, that’s ASCAP, that’s CSAC, that’s BMI and other labels that, publishing labels that we would pay there on a direct basis or through one of these type of PROs.

The largest chunk which is what John refers to under the CRB process. Under the CRB process which kicked off in January essentially an RFP was send out or a notice to all webcasters that hear ye, hear ye webcasting – webcasters 4 is about to begin. And it’s a two year process; you go through different elements of this discovery. You go through periods where you can negotiate, a settlement or ultimately you go into the binding arbitration process, where different economic evidences are presented.

Over the course of the next two years, different types of hearings happen. And the judges as mandated by Section 114 ultimately determine rate, where willing buyer or willing seller meet to form a market rate transaction and that’s how rates are set. It’d be premature for Pandora to speculate on where those rates go. The difference between webcaster 4 and all the prior preceding webcast sessions, Pandora has now involved in this one, we were never involved in media priors. And the concept of willing buyer, willing seller is becoming interesting because for the first time, they are actually do appear to be market rate transactions either set through Apple or through Clear Channel, Clear Channel Rich Bressler spoke of about 25 direct deals they’ve engaged in.

It starts to become interesting because this is a market that actually is starting to grow up, we are not adolescence. Whereas before it was very difficult to set market rate transactions, because there weren’t there were no players to set market rate transactions. And so I guess the punch line there is that we expect there to be an economically rationale outcome, I can’t tell you if rates are going up, I can’t tell you if they are going down or to stay in the same. We don’t control that aspect of it, we do believe there is consistency and that there is rationality there. But at the end of the day, we control the monetization side where the ultimate leverage in the model is.

John R Blackledge – Cowen & Co. LLC

Great. I had lot more questions indeed but we have about three minutes left if the audience has any questions.

Question-and-Answer Session

John R Blackledge – Cowen & Co. LLC

[Question Inaudible]

Dominic Paschel

Right, the question is about other forms of content and how that could be play in a sports, talk et cetera. When you look radio consumptions about 80% is music, 20% is – all those other forms of talk. Pandora at the time up until about six months ago, we were essentially to some degree governing hour’s growth. So weren’t looking really for catalyst for growth from our hours. We have a new team in place, now that we do have flexibility and gross margin leverage to invest in other areas of the business. Sara Clemens joins us as Chief Strategy Officer, and she helped LinkedIn essentially get into China, she helped biggest notoriety of her is really getting Xbox internationally.

So Sara’s team will ultimately look at international expansion, other forms of content we do have aspirations to be not just music but radio in all forms of radio other than just music radio. The challenge there is that sports franchises generally have only been profitable for that sports front, NFL is profitable just really for the NFL. And so to the extent that we can pandorize the content and that it’s accretive to shareholders not 10 years down the line but relatively soon we would look to enter that.

John R Blackledge – Cowen & Co. LLC

You mentioned international any, I think people are interested, well, why isn’t Pandora gone more quickly into international and there was an announcement about the candidate race, I think last week…

Dominic Paschel

Yes, so international for Pandora has always been a goal of ours. In 2007 we were international before we invested in IP blocking technology. The data actually suggests and our quant guys have run this, that we would theoretically be approaching a billion user base had we not started blocking IP addresses all you need to do with U.S. ZIP code. So we had many folks from international geographies that wouldn’t sign in with 90210 from Beverly Hills. And so a very popular ZIP code back in 2007.

Now though we do block and we opened up internationally in Australia and New Zealand about a year ago. Our progress there has been rapid and ahead of the U.S. adoption population adjusted back in 2005. International we want to continue to go but currently we have to go country-by-country because the rights organization that exist in the U.S. mirror that of sound exchange in PROs we essentially have to replicate that in each geography.

If we were to do direct deals that could theocratically break down the barriers a lot faster, John referenced a small nuanced a piece of news that came out that. We will see how it ultimately plays out but the Canadian equivalent of the CRB came back with royalty rates little over week and a half ago, they’re interesting. They’re publicly available through different types of publications Rain magazine is a radio industry magazine that’s a blog that is available I believe they speculate that the rates to be about a tenth of what they’re in the U.S. but that’s only for one of the royalties that’s for the sound recording royalty which is hour per track per play here, that’s notable, that’s a tenth of what we pay. Ultimately that we have to make sure the entire cost structure is accretive to the business. And so on the publishing side that could ultimately determine whether or not we enter into Canada.

John R Blackledge – Cowen & Co. LLC

I think we are a little bit over, so with that thanks so much for coming.

Dominic Paschel

Thanks John. I appreciate it.

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Source: Pandora Media's (P) Management Presents at Cowen Technology, Media & Telecom Conference (Transcript)
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