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Pandora Media, Inc. (NYSE:P)

Annual Stockholders Meeting Conference Call

June 4, 2014 10:30 AM ET

Executives

Brian McAndrews – Chairman, Chief, President and Executive Officer

Delida Costin – General Counsel

Edward H. Kennedy – Ernst & Young LLP

Michael S. Herring – Chief Financial Officer

Brian McAndrews

Good morning ladies and gentlemen. On behalf of Pandora, I would like to thank you for attending our 2014 Annual Meeting of Stockholders. I’m Brian McAndrews CEO, President and Chairman of the Board of Pandora. And I will now call the 2014 Annual Meeting to order.

I would like to start by introducing Bob Kavner, our lead director who is here in the audience, and also two other members of our executive team, Mike Herring, our CFO; and Delida Costin, our General Counsel. Also present is Edward Kennedy of Ernst & Young; Martin Wellington of Davis Polk & Wardwell, our outside legal counsel. And the Board of Directors has appointed Broadridge Financial Solutions, Inc. to act as our inspector of election, Christie a representative Broadridge has previously taken her oath as inspector of elections.

At this time, I will ask Ms. Costin to begin the formal portion of the meeting.

Delida Costin

Thank you, Brian. Before asking upon the matters set forth in the Notice of Meeting, let me cover some procedural points. If you have sent in a proxy card or delivered one prior to the meeting and do not revoke it at this meeting, your vote will be counted automatically without any further action on your part. If you still have a proxy card, which you wish to have voted please raise your hand and it will be collected. If you have previously delivered a proxy card, which you now wish to revoke by voting your shares in person, please raise your hand. If you wish to vote your shares in person, please raise your hand and the Inspector of Elections will provide you with the ballot.

Mr. Chairman, I present the affidavit of distribution of Broadridge Financial Solutions, Inc., which states that the notice of meeting and the company and proxy materials and annual report were mailed on or about April 22, 2014 to stockholders of record on April 8, 2014; which was the record date for stockholders entitled to vote – entitled to notice of this meeting, which is in accordance with the bylaws of Pandora.

I’ll now establish for the record that the meeting has been properly convened and that there is a quorum present for the transaction of business. This meeting has been called in accordance with the companies bylaws and the required notice has been given. According to the list of stockholders of record as of the close of business on the record date, April 8, 2014, there were issued and outstanding 205,332,382 shares of common stock. A duplicate record has been on file at the principal place of business of the company for the last 10 days immediately prior to the date of this meeting, and has been available for inspection by any stockholder during that period at any time during normal business hours.

A quorum for this meeting requires the presence either in person or by proxy of holders of a majority of the shares outstanding on the record date or at least 102,666,192 shares. I have been advised by the Inspector of Elections that a total of more than 185,889,093 million shares or more than 90% were represented in person or by proxy at the opening of this meeting. This total represents the majority of the shares outstanding on the record date resulting in a quorum, and the meeting is duly constituted, and the business of the meeting may proceed.

Brian McAndrews

Thank you, Delida. The report of the secretary on the existence of a quorum is accepted. I direct that the affidavit of distribution to be made part of the minutes of this meeting. We may now proceed to transact the business for which this meeting has been called.

The election of each candidate for director shall be determined by a plurality of the votes cast at this meeting, and the nominees who receive the most votes will be elected.

The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2014 shall be determined by a majority of the shares present or represented by proxy with respect to this proposal. The approval of the 2014 employee stock purchase plan shall be determined by a majority of the shares present or represented by proxy with respect to this proposal.

The first order of business is to elect the nominees of Class III Directors to the Board of Directors. As indicated in the company’s proxy statement, the Board of Directors has nominated Peter Chernin, Brian McAndrews, and Tim Westergren as Class III Directors to the Board of Directors of the company. The company’s bylaws require that a stockholder provide advanced notice to the company of a stockholder’s intent to nominate persons as directors.

No such notice was received. Accordingly, I declare the nominations for directors closed. So the second matter to come before the meeting is the ratification of the appointment of the firm of Ernst & Young LLP as the company’s independent registered public accounting firm for the year ending December 31, 2014.

The third matter to come before the meeting is the approval of the 2014, employee stock purchase plan, because no further business is scheduled to come before the stockholders, I declare the polls for each matter to be voted on at this meeting open at 7:34 today, June 4, 2014, and direct that a vote of the stockholders to be taken.

I declare the polls for each matter voted upon at this meeting closed at 7:36 today June 4, 2014, and direct the Inspector of Elections to collect and tabulate the ballet. At this time, I would like to introduce Edward Kennedy with Ernst & Young LLP. He will have the opportunity to make a statement or to answer any appropriate questions you may have.

Edward H. Kennedy

Good morning. I have no statements.

Brian McAndrews

Questions Edward?

Edward H. Kennedy

Okay. Ms. Costin, will you report the voting results on the proposals please?

Delida Costin

Thank you. Mr. Peter Chernin, Brian McAndrews, and Tim Westergren is elected the appointment of Ernst & Young LLP as the company’s independent public accounting firm is ratified. In 2014, employee stock purchase plan has been approved. The inspector of elections will furnish the company with a written report of the final vote count with respect to the matters voted on today, which shall be included in the minutes of this meeting.

This concludes the formal business to be brought before the meeting. And if there is no other business, the meeting is adjourned. At this time, our Chairman, and CEO will answer appropriate questions from our stockholders.

Question-and-Answer Session

Brian McAndrews

Any questions?

Unidentified Analyst

[Question Inaudible]

Brian McAndrews

Yes, right now, we are really focused on the U.S., where we see a huge opportunity and continue to see huge opportunity for growth by far the biggest market obviously in biggest advertising market in the world. And so, we’re really focused here. And as you know, we are in Australia, New Zealand as well, you may know that, but we are in Australia and New Zealand, and we have over 1.6 million registered listeners now, and we started selling advertising there as well.

So we are considering other countries over time, but there are challenges to be worked out in terms of figuring out what are the best countries, the best opportunities, and making sure that we figure out what the royalty structure are either country-by-country or through some of OTO.

So it is something that we are looking at over time if not an immediate opportunity for us, because we really are focused in the U.S., and what we see it as a long-term opportunity to sort out those issues and explore. We did actually recently hire somebody who is sole focus is international and help us figure out, what are long-term strategy is.

Unidentified Analyst

Now, another question, a second one. I discovered that the restriction is not applied to smartphones. I did a controlled test in a hotel room with my laptop, and I was denied access to Pandora. But I used an android-based smartphone with a Pandora app and that connected us to the hotel Wi-Fi setup, I get from [indiscernible] the question is, did I discover about or is that a feature?

Brian McAndrews

I’m not aware of that, I mean and but…

Unidentified Analyst

I mean, what is your intent to make computers and smartphones to be different?

Brian McAndrews

No. No, it’s not our intent to play music in areas where we are not authorized to play music, so…

Unidentified Analyst

I probably shouldn’t say that.

Brian McAndrews

Well, it’s good for us to know and we will take it back to our technology team and find out.

Unidentified Analyst

That wasn’t free?

Brian McAndrews

Yes.

Unidentified Analyst

[Question Inaudible]

Unidentified Analyst

Yeah, I know you can get around the firewall that way, and I discovered that in China. But I was pretty sure my smartphone would block into the hotel Wi-Fi [indiscernible] not using the international difference [indiscernible].

Brian McAndrews

Thank you. Any other questions?

Unidentified Analyst

[Question Inaudible]

Brian McAndrews

Well, our plan to appeal to really any age group, and certainly your age group as well is to create the best possible playlist technology. So that we’re playing the song that you most want to here when you hear it, when you want to hear it. So we’ve invested a lot of money and engineering time and energy into making our product as good as it is and hopefully better and better over time.

So it starts with the Music Genome Project, people who listen at Pandora and collect attributes for a song and rate attribute. And then we use technology and have about 50 algorithm on top of that to make it better and better. Now, we are different in some of those other offerings that modifies with an on-demand offering, so you can pick a specific song and hear that at a time. We are not an on-demand offering, we’re Internet radio, so you can pick an artist you like and then hear other songs very similar, you can sum up some down and give a feedback and refine that.

And I think what we found with a lot of listeners who really love that experience, they help personalize, they become better and better. On-demand also cost more. You pay a monthly fee where it work free. We have a subscription alternative if you want to add free listening, but we’re free offering. So we are a different offering. But our hope is that, what we bring to any age group and certainly your age group as well with very personalized radio, lots of discovery of new artist that you might not otherwise know.

We play hundreds of thousands over 100,000 artists a week on Pandora. And even, I think that’s probably I know that’s installing more than trusted radio. And I think a lot of on-demand competitors, where people are making playlist and picking a specific song is a much more narrow focus. So our goal is to introduce a lot of new music to you that you like, personalize it for you, and then hopefully keep you coming back.

Unidentified Analyst

[Question Inaudible]

Brian McAndrews

No, we have access to whatever is available throughout, up your mind for the other pros and through sound exchange. So we have access to, but they are not, I mean, correct if I’m wrong, because there nothing drops off. Any other questions? Yes.

Unidentified Analyst

[Question Inaudible]

Brian McAndrews

Yes, the good news is that we’ve gotten tremendous word of mouth from people like you and now they are selling people about Pandora. So we have not had advertised much over the years. And, in fact, we have very high awareness, so that in the U.S. in the countries we’re in a lot of people have heard about Pandora, the majority of the people probably have heard Pandora.

But having said that, we do invest some money in marketing. We do a lot, we do more on the Internet, so the search marketing. Some people are searching for music streaming, they can find Pandora, and we’re doing – we do marketing on our own service although obviously that for people who are already aware of it. But we found we haven’t had to do a lot.

We also benefit frankly from our partners like auto manufacturers who have Pandora in the car, and they are advertising their car and they recognize that Pandora is a benefit to them. And so, we get advertising on television that way although and consumer electronic devices as well. So we benefited from a lot of that and we reach you more over time, but we’ve been very fortunate that word of mouth has been very effective for us.

Unidentified Analyst

[Question Inaudible]

Brian McAndrews

Mike, you probably answer that one.

Michael S. Herring

We have a large national advertising business and then now a lot of local advertising business. We really target, did a pretty much, a pretty broad spectrum of the American companies, mostly trying to reach their customers here.

So we – the early adopters of the automobile companies were very aggressive early on, consumer packaged companies like Procter & Gamble are trying to reach large audiences all at once. We’ve done a lot of unique Internet type activation for StubHub and led trying to reach people who are using cellphones, because we have that audience and that we can reach directly and we know what device they are using that kind of targeting lend itself that advertisers trying to reach people who are technically connected.

So we’ve really covered the – a broad spectrum. In the local advertising, we are starting to see a lot of not just car dealership which recognize the advantage of local advertising, but here in the Bay Area people like Shane Co. right, which as heavy radio advertisers traditionally are moving to connected radio like Pandora or mattress companies suite chain such who are looking to reach on very specific local markets that evolution is currently within Pandora’s advertisers.

Unidentified Analyst

[Question Inaudible]

Michael S. Herring

We haven’t done a lot of that. We do some calls to action where you can download an app or click to receive a text offer or click to call to engage it in advertiser not maybe that advertiser specifically, but there is a lot of examples like that. As we get more local, there is a lot more the direct action that we drive I mean half of the advertisers with consumers using our service. Yes?

Unidentified Analyst

[Question Inaudible]

Brian McAndrews

We’ve lost 3.4 million subscribers and we’ve got 76 million monthly users that was in the Pandora, so it’s a minority. We’re primarily a free service, but we do offer subscription for people who wanted to add free experience, and it is growing, it is growing. But we are not primarily focused on subscription at the expense of add or vice versa we want to, whatever the listener prefers. But we do see ourselves attacking a market that is free, which is frankly a very, very large market of people who like to listen to free radio, but we also want to offer that subscription opportunity for people who choose that.

Unidentified Analyst

[Question Inaudible]

Brian McAndrews

We do, because we’re connected. We do know by your e-mail whether we don’t know you personally and but we know your e-mail and so we know with that account is no longer listening. And so, that is obviously something that we do track, and we do try to re-attract people to get back into listening.

Unidentified Analyst

But how you do that?

Brian McAndrews

You can advertise obviously as you said before in different ways and trying to target advertising in different ways through social media or through the Internet to try to get people to listen again.

Unidentified Analyst

You don’t reach out to offer anything to – anybody else like we haven’t seen you for a while, we haven’t heard from you [indiscernible].

Brian McAndrews

No, we’re not – yeah we’re not generally personal, and also we’re not in terms of being a free offering, what we want to do is bring you back and remind you about Pandora, and the attractiveness of Pandora, easy for a subscriber, if you want to re-subscribe. But yes, we can target advertising based on what we do know about you. And hopefully that we will find you just like in the Internet, there is a way of re-targeting the people who’ve been to a certain website, we can retarget to them.

So we are able to do that. So if you have a Facebook account, for example, there are ways that we can try to retarget people who have left us, and we will do that. But also we can do broader forms of advertising another way to reach people as well.

Unidentified Analyst

[Question Inaudible]

Brian McAndrews

I’d say, right now we don’t have any plans.

Unidentified Analyst

Great, okay.

Brian McAndrews

We’re happy to be here.

Unidentified Analyst

[Question Inaudible]

Brian McAndrews

We don’t have the kind of traditional developer program that you see like apple just finishing their conference with that. We were closely with partners mostly around who are enabling Pandora to be listen to the devices, and so it’s not a broadly open engage platform, it’s more of a specific partner by partner engagement strategy.

Unidentified Analyst

[Question Inaudible]

Brian McAndrews

Well, majority of our advertising is sold direct, that’s attracting. We do use some, we work with exchanges, and I do some programatic exchange selling or we sell through third-party that are aggregating demand with advisors. That’s mostly in the web display world. In the audio world and then in radio world, where a lot of our growth has come, those avenues we’re selling advertising unavailable. Yes, I think over the next few years, those will emerge, but right now direct selling is not only successful at Pandora, it’s really our only avenue to sell that type of advertising.

Tim, so any other question? So on behalf of the Board of Directors, I thank you for attending today and for your continued support to Pandora. Thanks very much.

Tim Westergren

Thank you.

Delida Costin

Thank you.

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