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Pandora Media (NYSE:P)

Sanford C. Bernstein Future of Media Summit Conference

June 18, 2014 10:15 AM ET

Executives

Dominic Paschel - VP, Corporate Finance & Investor Relations

Analysts

Todd Juenger - Sanford C. Bernstein

Todd Juenger - Sanford C. Bernstein

All right. As we -- thanks for bearing with us as we continue to figure out how to make these transitions work. But we don’t want to waste anymore time, before we get to the next event. So sitting next to me is Dominic from Pandora. Now I have to say if there is one Company that sort of wraps up what we’re trying to accomplish with this event, it’s probably Pandora just because I would assess -- I don’t know if Dominic may not describe it this way, but to me it's just fascinating combination of one of the oldest forms of mass media which is radio, which is taking advantage of all the things you can do with new technology to make it more personal and to distribute it new and more effective ways and mashing that all together to create something new and valuable which is just inherently fascinating to me. So I can’t wait to get into that. Just to set the playing field level, I think it’s probably worth a few seconds just to make sure everybody in the audience knows exactly sort of what Pandora is and does. I wouldn’t spend -- people probably know, but let’s make sure maybe you will find a couple of new subscribers by doing that and then we will dive into the conversation.

Dominic Paschel

Yes, that’s great. Thanks Todd for having me here and for Pandora as well. It’s funny I built my career on the concept of disruption. The vast majority of my career was actually spent in cloud computing, so helping to describe new business models to Wall Street in the media for the last 10 years.

So for the last three years I have been spent more on the consumer tech side, which is oh so exciting. There is something new everyday that either matters or doesn’t matter to the Company from a perception standpoint. But before that it was really around cloud computing. So I started my career at salesforce.com and then success factors are helping to establish them in the public markets and then coming over to Pandora to describe a whole new business model.

I have investors actually from the Boston region that were my largest holders of both those prior companies and they were like Dom why didn’t you stay in cloud computing, you finally people get it especially on the deferred revenue model.

With Pandora it's a whole new ballgame. Pandora we are essentially redefining radio for a connected world. Only today has internet connectivity become as pervasive as radio waves, and so Todd you mentioned the concept of the whole conference was around the Future of Media.

And when you think about it, people ask, but why did it take so long for radio to go through this transition? And part of that is it's just simple connectivity and ease of use really haven't gained critical mass and scale until the recent -- even the last five years. And the next three years will even have -- the next five years will have even multiples of that effect as well.

I was -- I had the opportunity to go out and visit our local sales team in Denver and Kansas City and the driver in Kansas City was telling us that essentially Google Fiber is there now. So even the concept of free around radio is extending now to free around connectivity and really that’s the only gaining factor for Pandora’s growth and Pandora’s usage is really around -- just sheer connectivity and device pervasiveness.

And so for Pandora we are bringing the best of radio, which when you think about it there is kind of four key hallmarks of that. And the first one would be free ad supported to the consumer. The second would be zero work, so it's ease of use. The third would be ubiquity that comes in forms of connectivity, comes in forms of device ability to connect, and then the fourth would be discovery, discovery of new music.

I think we have today’s top hit station playing right now, so it's probably going to have a lot of the top 100. But you might have a walk the moon station or you might have -- if you want to go back even prior to that, a Glenn Miller station, right. Music that wouldn’t generally have the opportunity to get played in terms of mainstream music on radio today and we’re combining that with the best of the personalized technology of the internet.

So those kind of four key hallmarks with the personalization engine, the customization engine, the engagement engine of internet, and boom that’s where you have kind of modern day Pandora, where we have now more than a 250,000,000 registered users.

Todd Juenger - Sanford C. Bernstein

So one of the things that I get asked about believe it or not, is everyday you said there is something that pops up as either meaningful or not meaningful to Pandora, when you think about other music services that seem to pop up everyday, right? There is Spotify, there is Rhapsody even around for a while. There is Apple and what they’re doing with Beats. Amazon Prime has launched sort of a service and begging the question, isn’t competition in online music distribution getting more and more and more intense in what sets are important and different now. I’m going to let you describe why Pandora is different rather than try and do it myself, but a streaming radio experience is fundamentally different than a pick what I want to listen to right now press play sort of experience and how are those different -- the consumer segment is different, where -- is that a real competition or not with those types of services?

Dominic Paschel

Sure. Every decade generally there are some evolution in the form of owned music in some physical format and how that's evolved. But just taking a step back, when you look at the modes of consumption of audio, you generally for the last 60 years ever since the advent of owned music on mass scale you've always had two forms of consumption. One that would be considered lean in and one that would be considered lean back, someone else is doing the work for you.

And when you look at the VSS data, Veronis Suhler Stevenson data would actually show that over the course of the evolution of those two forms of consumption, surprisingly the amount of time spent with each form has remained pretty consistent. 80% takes place in a lean back environment which has historically been served by radio. 20% is in the on-demand space as we know it today.

When you look back at kind of the decades of evolution you have in the 60s, you have vinyl records and radio. You had in the 70s eight tracks and radio. In the 80s you had cassette tapes and radio that's actually where -- you burn your significant other as -- not a burn, but record on to a cassette tape. My generation was more of the burn a CD, but you'd have radio in the 1990s.

And then with the digitization of music in 1999, I think that the perception that just because all of your music can be put on to a small smartphone type device or an iPod at the time, then all of a sudden the consumption pattern would change and it hasn't.

15 years ago to the month, Napster launched and radically changed the owned music category, that 20% of consumption. And then you had the launch of iTunes, I believe in 2001 where Steve Jobs made another big kind of historical milestone in music which is to essentially break the album. But there is one consistency that really hasn't felt power of disruption and kind of where media is headed and that is fundamentally radio.

Even today despite the evolution of all those kind of decades worth of owned music consumption devices or formats, you still have 240 million people in the United States that listen to radio on a weekly basis. And they do that because of the four hallmarks of radio.

And so often times in the last three years that we’ve been a publicly traded Company, there has been -- there have been a lot of announcements in that owned music category, that on-demand category that from a perception standpoint has always been viewed as the next Pandora killer.

Well, at the end of the day, it isn’t. Seven years ago when we -- eight years ago when we started, Pandora had very formidable competition in the true internet radio space and that was Microsoft, Yahoo and AOL. At university, I actually used LAUNCHcast partially because I think it was built into my Yahoo instant mess or -- Yahoo Instant Messenger and it was great. So we had very formidable competition when Pandora was created.

What Pandora did in how we approach the market, we didn't create internet radio. We created personalized internet radio. That's where the thumbs up, the thumbs down, the ability for you to customize radio stations based on your preferences. Now the original, the base of that started with The Music Genome Project which allowed for the musical DNA and characteristics of the song to be mapped out anywhere from 240 all the way up to 450 key attributes of the song. Just Imagine Dragon song playing right here, if you were to click down on the details you could actually give some of the characteristics of what the music analysts would derive off this Imagine Dragon’s song.

And what we did is we mapped that to your preferences and to the preferences of the masses. And that's where modern-day Pandora is no longer just about The Music Genome Project. We are a data company. When you look at the massive amount of data we have in terms of how tastes evolve, how certain artists evolve, it matters a lot in terms of the quality of the playlist experience that you get from a consumer.

Over the course of the last three years when there have been kind of the on-demand players that have launched with perhaps radio like features or that there have really truly been competitive launches. You look at Clear Channel, whose business ultimately stands to lose the most from our success and that of also when you look at Cumulus as well and CBS. Pandora is there to disrupt their businesses, because we fundamentally deliver a better value proposition for the consumer and for the advertiser. And so those are the true competitors.

And when we look at how the market share has evolved over the three year period that we’ve been public, when you look at the Triton data, Pandora has essentially moved from owning half of the market back when we went public three years ago in this month as well to now if you look at the latest Triton data, we have nearly 77.5% of all of internet radio. So it’s interesting as you have seen kind of the space evolved, you have seen kind of the transition and bigger players potentially get in to offer adjacent services to that of Pandora. We continue to be very valued partners with all of those major companies by the way and we continue to gain even more and more market share in the true internet radio business.

Todd Juenger - Sanford C. Bernstein

So when you think about in the lean back section of the listening market, you already took me here so just to rounded it out, I think the competitors can be divided between the rest of your radio stations, basically Pandora for internet streaming, maybe there are some other smaller margin inflators, iHeart for instance as a digital extrapolation of the terrestrial side and then satellite radio. Just by the numbers, given the number of active listeners you have, and the number of people we believe are still listening to terrestrial radio most of your listeners also listen to terrestrial I think or they must or there has to be -- it adds up to more people that are in the country.

Dominic Paschel

Yes.

Todd Juenger - Sanford C. Bernstein

So as you think about how share shifts over time and the data that you see -- how do you think that evolves in terms of share of people’s lean back time across those different forms of radio?

Dominic Paschel

Yes and that even I listen to broadcast radio for certain content, for certain -- depending how engaged I’m and where I’m at and also my -- where I drive to Oakland everyday from Noe Valley in San Francisco and for me, I kind of listen to terrestrial radio because my car it doesn’t have Pandora in it. My version of -- my car doesn’t. The version that you can buy now has it integrated fully into it.

Like with every form of media, you split your time up and what we see and what our aspirations are, we want to continue to grow in terms of number of active users, so we’ve 77 million active users. There is no reason that shouldn’t easily top a 100 million. Again, the only thing stopping us is connectivity and device pervasiveness.

I just recently got a pebble which is the new -- the first wearable technology that Pandora is embedded into as well. So that’s great. Again, another point to access it. As slowly my life adopts more and more areas of consumption where it’s easy, simplicity to have Pandora within that environment, more and more hours of my life go devoted to Pandora versus broadcast radio, that’s an inevitable truth that will ultimately play out and it has played out.

If you look at average number of hours per active, three years ago that would have been around 15 hours per month per active. Our engagements have reached an all-time high if you look at the May month in metrics release we’re up to about 22 hours per active per month. We think that can ultimately go to 56 hours because if you look at Arbitron data, NAB data, it suggests that the average U.S. consumer listens to about 56 hours of radio a month.

Again, there is no fundamental reason why Pandora can’t have that. We would need to evolve into some other forms of content such as talk, sports, business, that’s about 20% as well of radio, but we have the vast majority which need, which is music. We just -- we will become more and more engrained in every part of your life simply through connectivity.

Todd Juenger - Sanford C. Bernstein

So when you think about -- by the way, to translate to my head just for anybody keeping score I would like to think -- I think your active listeners are -- I think its about 45 minutes per day per -- if you take your and I think the radio in all totality is two hours per day, so that’s where I was -- same thing as your 56 hours a month and whatever 20 hour …

Dominic Paschel

You are about 22 and 56, yes.

Todd Juenger - Sanford C. Bernstein

My simple brain feels better in days and months. When we think about how that translates to revenue and growth for Pandora, you've hit it. There is three growth levers that I can identify. One is getting more users, one is getting those users to listen more and the third is getting more revenue per hour, right?

Dominic Paschel

Yes.

Todd Juenger - Sanford C. Bernstein

So relative proportions of those three drivers to your growth trajectory and sort of the pacing of each -- how do you rank order those and where are they -- how they come together?

Dominic Paschel

They’re all important. You have to look at -- I mean, we’re operating -- this is a very simple -- it seems like a very simple model, it should be. But the reality is that it's a multi varied equation that we have to grow within the right realm of each other in terms of rates. You can’t have anything disproportionate outgrowing the other because it kind of throws the system out of whack. Three years ago The Financial Press painted Pandora a victim to its listener hours.

I remember reading the headlines as we were going public and they were like the more Pandora succeeds, the more money it looses though it’s a horrible business model. The reality was we were investing in scale. We knew that we wanted to go after radio. We knew that we wanted that $15 billion market and so want we want a victim to our listener hours. We wanted to become the number one ranked radio station in every major local market, because there was a plan in play, which was once we had undisputed scale, we’d invest and we had concurrently in terms of getting that independently verified and measured which we have through Triton which the most notable accomplishments there happened in March which was the MRC accreditation, the Market Ratings Council accreditation.

Kind of the golden seal from a marketing perspective and get that measured originally started in 10 local markets. Move that into the top 50 and now Triton covers the top all 276 markets out there, which is great. When you look at that versus kind of you’ve been arbitron and accreditation, Triton de facto wins out.

When you look at the third kind of key puzzle piece that was really to get it integrated into the radio ad buying platforms like Strata and Mediaocean. In April, we discussed getting integrated into the planning software’s, not only the buying software for radio, but the planning software, which is known as Telmar. That was another kind of piece of the puzzle.

And once we had all the tools and systems in place, that was really the time to govern our growth hours -- our hours growth and reinvest the gross margin leverage we’re starting to see from the revenue traction into deploying a local sales team. And so we went from having kind of key sales leaders within eight markets to now expanding into over 37 local markets. Palmira and I are going to actually have once with our Boston based team, which is great and it’s cool because you get to hear anecdotes and stories about what they’re seeing and achieving. One of the anecdotes from kind of the Denver market, its interesting to see who we’re hiring or where they’re coming from. In Denver three of the top five radio stations were Entercom. And I think most of our reps were actually either from Clear Channel or Entercom. So we’re hiring the best and the brightest from that industry as they’re looking to the future of where a radio goes, which is awesome. So that was kind of a fourth piece of the puzzle, hire the team that can go and utilize all the tools we’ve -- and scale we’ve created.

And then really the fifth and final piece of the equation is simple inertia. How do we get radio buyers to change the way they have been buying radio. Not necessarily from a systematic standpoint, we act sound and quack like radio very much so, but its about getting them to say okay Pandora’s market share is 9%, am I allocating my 9% of my budget to Pandora? No. When we think about it, we have less than 1.5% of total ad dollars being spend just on radio for getting about the mobile and the digital opportunities for a second, just in mobile -- sorry, just in radio we’ve less than 1.5% of $15 billion market when we should have 9% today and that doesn’t even – that seems zero growth in hours or usage 9% today. And that will continue to grow as we are now in a 135 different models of cars. The more Pandora gets embedded in your everyday life, the more hours we will get, the more we will drive monetization.

And so the key to the model as you pointed out was RPM and we continue to gain significant traction from revenue per 1000 hours concept and are very happy to see monetization continue, usage continue, and ultimately taking more and more of radio’s money.

Todd Juenger - Sanford C. Bernstein

So earlier this morning we had Perry Sook from Nextstar, a TV Station Company here and we were talking about his local business and I had a very good discussion about how hard it has been for the big global internet platforms to deliver marketing value for local businesses and sort of why hasn’t Google, for instance wiped out global television, and he has some very persuasive commentary about that. Radio, I might say is similar in the sense, say -- I mean, radio has always historically been much more of a local business. So, you’re making the investment to put people on the ground. So, maybe that’s the big part of cracking it. What else is going to -- how much of your revenue today is local and what does that runway look like?

Dominic Paschel

Sure. And revenue in the first quarter was about $181 million; it grew 54% year-over-year. When you look at the ad revenue, I believe that was about $150 million, it's about 81% of our revenue. And when you look at essentially of that ad revenue, we have now grown local ad revenue to be 20% of ad revenue up from 10% the year prior, so it grew about 230% on a year-over-year basis in Q1, which means that we’re having tremendous success on the local market today.

I was on a radio panel with Lew Dickey from Cumulus, and it's interesting his observations there. I couldn’t help or differ as you would expect for me to do. I think one of the comments that he made essentially was around the fact that with local or with radio there is limited inventory and that with digital that it's a race to the bottom on pricing because anyone can go after that. There’s just infinite inventory, and I think he used the Yahoo as an example. Goes to show you that he doesn’t quite know their business, because part of their challenge is they don’t have enough inventory; many more inventory to sell.

And so when you look at our businesses, the reason why radios inventory is limited is because Pandora is taking more and more of it. When you look at the value we give to advertisers, it's like comparing the Jetsons to the Flintstones. So, when you look at the fact that we have measurement, attribution, a reporting statistics in a way that broadcast radio doesn’t come close to, we can demonstrate tremendous ROI for local advertisers and we do that. We have a user base now that again is registered more than 250,000,000 on a monthly active mutual perspective it's $77 million.

I think we’ve hit new high watermarks for concurrent listeners and about $26 million concurrent listeners which is crazy to think about what that means in terms of the U.S. and who’s listening. We have your age, your gender, your self reported zip code, your email address, characteristics that even broadcast radios internet properties don’t even have. And so the value we’re delivering to advertisers is huge. And so when you look at the local component of it, of course it's going to be a huge part of Pandora’s future. When you look at the $15 billion that’s radio, two-thirds of that is local.

And now on the content side, I think you hear kind of these radio bosses as well speaking to the fact that, Oh local is great. We provide local flavor, DJ’s. But when you -- it's interesting because as they’re saying that, all of these radio bosses are also kind of consolidating their industry. I mean, I travel quite a bit for this job, and I -- every time I hear it Ryan Seacrest. So it's like, how local is that content? So, I disagree with that. I think that’s how they like to judge the post, their value proposition versus Pandora. But there is a reason why people are tuning off that local content. It's because they give you 12 to 15 minutes of advertising because they have a captured vote, a captured audience that half of the consumption is in the car that have no alternatives.

With Pandora because we can strategically deliver ROI to advertisers in a much more selective basis, we can drive the same level of monetization without the level of interruption necessary to be honest that broadcast radio is taken for granted from you guys, because the consumers had no other alternative.

Todd Juenger - Sanford C. Bernstein

You mentioned -- you brought it up -- okay, let me finish my one talk and then we’ll go to -- so while you’re collecting your questions, let me ask one final question on my own and then I’ll shut up and let you guys ask. There must be a good demand for questions. You brought it up, I just want to round it out, this whole notion of content and is there more or different content required as one of the components to pursue more local revenue. I mean it can’t be an accident that during drive times or prime time especially in the morning that a lot of the stations are populated with sort of talk, humor whatever as opposed to music, right? That doesn’t exist much or at all as I understand it on Pandora today. So, is that what people want to listen to in the morning, that’s when audience uses is highest. I mean, just Pandora need that.

Dominic Paschel

Yes. You always have to be careful about inferential or rather inferences around why things are done such and such, right? It gives an opportunity for a DJ when, I was in LA and Palmira and I were driving to some meetings and we’re listening, little I think I heard one song in a 20 minute drive that I got like half a mile in for LA traffic, and the rest of it was the DJ’s going back forth or commercials. And there was this whole thing about like this, where they call and trick the guy about the girlfriend who’s cheating or the guy who’s cheating on the girlfriend. I was just listening to this like, amazed. Now maybe my preference is definitely not to hear, to listen to that. I would rather just rock out to music. But I would say that a lot of times these local content is really just the way for them to deliver advertising. These DJ’s are the same ones that promote X, Y, Z event or that promote Lasik Surgery or -- and so how much is that for the consumer and how much of that is for their bottom line.

Todd Juenger - Sanford C. Bernstein

All right. For Julia’s suggestion, we do have a full audience. I see at least one hand up already, so let’s take it to the floor.

Dominic Paschel

We can hardly -- there are people all over there, we can’t really see them very well.

Question-and-Answer Session

Unidentified Analyst

Hi, how is it going? To expand on Todd’s question a little bit and something you said before on in, expanding listening hours. I’m curious if you could talk a little bit about how you compete or can compete better again stay sort of large entrenched satellite provider that has good relationships with OEMs, and specifically about sort of talk and premium, I am going to make another unjustified inference from personal experience in it -- in what I think, a lot of people keep their satellite subscription because of the ease, it's entrenched and specifically because of sort of the, I don’t want to say premium, but sort of that premium talk type things. And how can you sort of make inroads into that, because that would, it seems like would be a huge opportunity to expand hours?

Dominic Paschel

No, that’s a great observation. And our goal is not to be SiriusXM, the value they deliver to their consumers is often times on the content side of it. When you look at the 80-20 rule, like the 80% of music and 20% talk, sports, comedy, other forms of non-music content, that ratio probably is a little bit more skewed for SiriusXM for example. So it's probably like a 60-40. But at the end of the day paying or arguing with how extern over $400 million in equity, I don’t know if that’s the best use of our capital or time or focus given the amount of revenue that it drives for SiriusXM. We do fundamentally believe and want to be all aspects of radio. So, does that come in other forms of content? Today you can get comedy on Pandora all the way from the very well known artist or artists like Bill Cosby all the way down to Anjelah Johnson a native of Oakland, it's great. We’ll continue to expand and evaluate. We have Sara Clemens, whose team not only will evaluate corporate development initiatives, international and content such as sports and otherwise. We don’t believe today that we’re given the opportunity set in front of us that we’re missing out. I mean our challenge has been that we’ve grown so quickly. And so, as we look to drive other forms or growth or other levels of growth, now that we kind of have our feet under us, those are going to be part of the strategic framework that we evaluate.

Unidentified Analyst

Of the 20% that I think you referenced for news, sports, talk. What percentage of advertising revenue do those types of content garner?

Dominic Paschel

Yes, it wouldn’t be disproportionate from a share, it's a little higher. So it's probably like 25% depending on who you read. Part of that is it, within an hour of that, like in listening hour of that format, it's even higher for advertising. You get more and more, it's not that 12 to 15 minutes or it can be the 15 to 20 million, somewhat you get more advertising with those forms of content.

Todd Juenger - Sanford C. Bernstein

I know we have some questions over here. If you just want to say it, we can repeat it.

Unidentified Analyst

(Indiscernible)?

Todd Juenger - Sanford C. Bernstein

So as we compete with trust for radio …

Dominic Paschel

Repeat the question.

Todd Juenger - Sanford C. Bernstein

As we compete with radio or trust for radio companies given that their cost structure is lower and so my friend over here who was describing the fact that they don’t pay sound recording royalties which is the largest chunk of our cost of content. Are they willing to sacrifice their pricing structure in order to compete with Pandora essentially a race to the bottom?

Dominic Paschel

I don’t see how you can do that if you’re a Clear Channel and have $19 billion in debt. You paid -- I think they made $1.2 billion in net income, and I think they paid $1.9 billion in interest payments. It doesn’t work for when you’re over levered in that manner. But more importantly on a strategic level, we price at the premium levels. We’re not under pricing to go in either. We know the value that Pandora offers and creates. And when you look at the price points for radio, it's generally been pretty stable in recent times. Obviously in the recession it went down, but it stabilized and it continued kind of in the normalized CPM rates that radio gets today, and if you look at an RMP basis that’s about $73 per 1000 hours for a broadcast radio. But we’re not seeing that in the market place. I think more people will trying to differentiate and say local or because even if you get into the lower price, what's the return you’re getting there? You don’t know. Whereas when you know when a (indiscernible) pizzeria the number of times the app install is clicked through for Pandora or try and think of another local advertiser -- Don Chalmers in Albuquerque, New Mexico. We have direct data that has, can correlate to ROI statistics that blow their minds.

Todd Juenger - Sanford C. Bernstein

More question, I thought I saw another hand -- Oh, right behind you, Julie.

Unidentified Analyst

Thanks. Could you just talk about things like geofencing or other things that you need to roll out? And is that sort of a critical part of driving up the local ad dollar percentage of your revenues?

Dominic Paschel

Sure, and to be clear, where you’ve always taken a more conservative viewpoint on privacy standards. So, even though the opportunity allows for us to geolocate you today we have opted out of that functionality currently simply because we have enough going on in Washington DC we didn’t want to be on the bleeding edge of a privacy debate. We’ll let Google and Facebook and Foursquare utilize their G&A dollars for that.

However, I think the conversation around geolocation as a culture and as a society has evolved and will continue to evolve. Like, I would love to get an ad when I am driving on the 101 down to LA from San Francisco, five hour drive and I don’t -- there happens to be an In-N-Out coming up three hours into my trip, that would be kind of cool. I would like to know that, especially if there’s a deal there.

And so Pandora will evolve around kind of geolocation, but we’ll do it around product features. So the cool thing about -- we try to make it a native experience, everything we do, from an advertising perspective, as well as a user perspective, because that works out to be the best win-win situation for everybody. And so, when you think about how, what we can do with the product around, it can be social listening.

So say, Todd here is throwing a 4th of July party and he’s using Pandora through his Sonos system at home and then guest start to come and show up. And you opt into the kind of the social component that you’re there and it won't change Todd’s station per se, but maybe what it will do, songs you absolutely hate like we know from the dataset, you’ve always thumbed down Katy Perry’s Birthday Song, because you’ve just heard it too much.

It won't play at his party because you’ve kind of, we can nary, all of -- say 30 people of the 100 people who’ve opted into it. We can take all that dataset and then transact in a very fast manner and all of a sudden create and optimize the best play list for everyone who’s opted into that. And so for you as a consumer, that’s going to be awesome. And then from an advertising perspective you’ve given us permission to geolocate you.

And as the advertising world evolves to doing real time location, we’ll stand a benefit. And I would argue though that we’re not missing out today because I think there’s still hiccups there, I think Target learned this the hard way with some stuff with AMEx, I believe in Southern California, and so there are unique things that are still evolving in that medium.

Unidentified Analyst

So, you actually don’t -- so even if you have it as an opt-in, you think that’s still potentially problematic from a privacy standpoint?

Dominic Paschel

No, that would solve for the -- once you opt into it. We just don’t offer that today.

Unidentified Analyst

Okay, got it.

Todd Juenger - Sanford C. Bernstein

Any other questions from the audience? I know we are bumping up on time here. I don't want to let you leave without asking one other thing to myself, if I don't preempt anybody, which is just that something we’ve seen over and over again in the internet is you name the company, all of a sudden their usage goes more mobile; all of a sudden it looks like it monetizes less than desktop did. So how does that map to Pandora as more and more users are going to be -- I think you do disclose a lower RPM on mobile and on desktop and I am looking to hear at this video ad. So how does that mix affect you?

Dominic Paschel

Yes, and so this debate -- we’re on the forefront of this debate three years ago when we -- so it's Facebook. Then the cool thing with Pandora is that, given that we’re tapping into an established market known as radio already. First and foremost we will be a thought leader in how mobile develops. But as we’re doing that on the digital side, we have a $15 billion market that is inherently mobile, a fun trivia fact that I play with people. In 1930, the Galvin Brothers put the first radio transceiver into an early vehicle and they founded a company that later combined the word motion and sound. So their Company actually became quite big.

What company is that? Illinois got acquired by Google, Motorola. And so, ever since 1930 radio has been inherently mobile. And so as Pandora is creating new innovative products around kind of engagement for digital advertisers put the call, click to email, click to tweet, like if there is a new NBC show coming on like every time you -- the voice always advertises with us and so you can do click to add to your calendar. So, it's not -- everyone always looked at the negatives that there were smaller screens, less engagement, no.

That’s not the case in a mobile environment. We can actually utilize the mobile technology in a way that is beneficial for use of the consumer. And that has made Pandora, when you look at our mobile revenues they grew to about $135 million growing 71% year-on-year in Q1. We are essentially the third largest producer of mobile revenues of any major internet technology company. So we come after Google and Facebook and then comes Pandora, and we’re ahead of everyone else. So, our RPM -- the phenomenon you described in our RPM between desktop and mobile and other devices it relates more to a sell through.

So it's just the amount of inventory we have and the amount that our direct sales reps can transact. And that’s why fundamentally we’re making the investment into the sales team so we can close the gap between the sell through. And it's not about pricing, because again with Pandora the unique component and the benefit we provide to advertisers and the consumer, we’re not interrupting your experience when you see an ad on a visual basis. We can almost take over the entire screen space of the phone and unlike when you’re on the New York Times mobile or Wall Street journal mobile. If something takes over almost the entire screen space of the phone, they’re interrupting you. With Pandora, you’re still getting your music or you’re still -- and so it's a different, we have a different set of benefits for the advertiser as well as the consumer that are probably very unique to us. So awesome, Todd. I appreciate your time.

Todd Juenger - Sanford C. Bernstein

We’re out of time. Dominic, thank you so much for making all the way across the country, being with us.

Dominic Paschel

Of course.

Todd Juenger - Sanford C. Bernstein

I really enjoyed the discussion.

Dominic Paschel

Thank you, Todd.

Todd Juenger - Sanford C. Bernstein

I appreciate it. Best wishes. Thanks everybody.

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Source: Pandora Media's (P) Management Presents at Sanford C. Bernstein Future of Media Summit Conference (Transcript)
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