{"id":3829,"date":"2015-12-08T21:08:04","date_gmt":"2015-12-09T02:08:04","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/pandora-pay-us-to-not-annoy-you\/"},"modified":"2015-12-08T21:08:43","modified_gmt":"2015-12-09T02:08:43","slug":"pandora-pay-us-to-not-annoy-you","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/pandora-pay-us-to-not-annoy-you\/","title":{"rendered":"Pandora: Pay Us to Not Annoy You"},"content":{"rendered":"

The Digital Shakeup of the Music Business<\/u><\/strong><\/p>\n

The rise of the digital age and the prevalence of smartphones and tablets have caused upheaval in the music industry. Global record sales plummeted -62.5% from their peak of $40Bn in 1999 to $15Bn in in 2014.\u00a0 Also in 2014, digital downloads and subscription services overtook compact disks as the dominant operating model for delivering music to fans (1).\u00a0 Within digital music sales, there are two distinct business models: the subscription business model (i.e. Pandora and Spotify) and the download business model (i.e. iTunes classic). \u00a0By 2020, it is expected that subscription services will come to dominate the digital music market (2). As record labels scramble to stem the decline in music sales and search for sustainable digital-focused distribution partners, many companies have entered, making digital music sales highly fragmented and competitive.<\/p>\n

Introducing Pandora: A Music Streaming Pioneer<\/u><\/strong><\/p>\n

Pandora (NYSE: P) was one of the earliest companies to enter the digital music streaming market. Pandora pioneered the concept of internet radio and led the way for companies over the last 15 years to develop alternative steaming music operating platforms.\u00a0 The Company\u2019s overall vision is to be the \u201ceffortless source of personalized music and entertainment and discovery for billions (3).\u201d In 2005, the Company introduced its ad-supported radio service that today totals 250 million registered users.<\/p>\n

Pandora\u2019s Operating Model: Streaming Algorithmic Playlists<\/u><\/strong><\/p>\n

Pandora\u2019s operating model is to deliver highly curated music playlists to its online users. The key difference between Pandora and other music streaming services is that, with Pandora, you cannot pick each individual artist or song, you can select the start of a playlist. In this way, Pandora is a more interactive form of radio than traditional car radio, but less customized than other streaming and music download services. Pandora acquires its music through licenses purchased from copyright owners, and delivers this content to its users through its website and mobile apps that are internally developed.\u00a0 An additional key piece of technology besides the website and apps is Pandora\u2019s collection of algorithms to determine playlist content and to recommend new playlists to users.<\/p>\n

Pandora\u2019s Business Model: Advertise to Listeners, Charge Listeners for No Ads<\/u><\/strong><\/p>\n

Pandora has two sources of revenue: advertising and its user subscription platform.\u00a0 The Company charges marketers for the opportunity to post audio, display, and video advertising embedded within its listening service and on the website and mobile applications.\u00a0 Additionally, Pandora offers the opportunity for its customers to pay $4.99 per month to access the Pandora music service ad-free, and in higher quality audio formats.\u00a0 As of the end of 2014, advertising represented 80% of revenue and Pandora One 20% (3).\u00a0 In terms of cost of providing the music, Pandora pays the owners of content in proportion to the frequency the music is played on Pandora\u2019s platform.<\/p>\n

Pandora\u2019s Business Model \/ Operating Model Mismatch<\/u><\/strong><\/p>\n

Pandora has a unique operating model compared to other streaming music services and a large gap between its business model and operating model. \u00a0Pandora\u2019s operating objective is to deliver high quality playlists to as many customers as possible, whereas its business model focuses on the presence or lack of advertising.\u00a0 Therefore, Pandora is not necessarily compensated for availability or quality of music content on its platform.\u00a0 Users are only incentivized to pay if the annoyance of advertising is enough to motivate them to pay for an ad-free experience.\u00a0 Marketers are motivated to buy ads according to the size of the customer base available on the platform.\u00a0 This stands in stark contrast to Pandora\u2019s streaming competitors, most notably Spotify and Apple Music, who charge users a subscription fee and offer exclusive access to certain music content.\u00a0 Although Spotify does have ads on its free-of-charge service, Spotify also charges its users to have access to its mobile platform, which is arguably more directly linked to its operating model.\u00a0 This helps explain Pandora\u2019s poor stock performance.\u00a0 Pandora is currently trading 22% below its initial offering price and 67% below its all-time high price set in early 2014. \u00a0As a result of its divergent operating strategy from its competitors, Pandora has failed to make a profit as a public company.\u00a0 The cost of acquiring customers and content in this business is highly competitive, and driving user growth is paramount to achieving economies of scale. \u00a0\u00a0Pandora\u2019s competitors arguable have stronger operating model to drive user growth due to a focus on charging for the actual music available, and also for supplying an operating model that delivers music on-demand.<\/p>\n

 <\/p>\n

Sources: <\/u><\/p>\n

    \n
  1. The Verge<\/em>: \u201cDigital Music Revenue Overtakes CD Sales for the First Time Globally\u201d http:\/\/www.theverge.com\/2015\/4\/15\/8419567\/digital-physical-music-sales-overtake-globally<\/a><\/li>\n
  2. Business Wire: <\/em>\u201cDigital Music Subscriptions Services Market Report: 2015: http:\/\/www.businesswire.com\/news\/home\/20151009005697\/en\/Research-Markets-Digital-Music-Subscription-Services-Market<\/a><\/li>\n
  3. Pandora\u2019s 2014 10-K Annual Report. Available on SEC Edgar.<\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"

    Pandora falls behind competition on unique operating model.<\/p>\n","protected":false},"author":1277,"featured_media":3830,"comment_status":"open","ping_status":"closed","template":"","categories":[119,249,688],"class_list":["post-3829","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-loser","category-music","category-pandora"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"\nPandora: Pay Us to Not Annoy You - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/pandora-pay-us-to-not-annoy-you\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Pandora: Pay Us to Not Annoy You - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"Pandora falls behind competition on unique operating model.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/pandora-pay-us-to-not-annoy-you\/\" \/>\n<meta property=\"og:site_name\" content=\"Technology and Operations Management\" \/>\n<meta property=\"article:modified_time\" content=\"2015-12-09T02:08:43+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/P-Stock-Chart1.gif\" \/>\n\t<meta property=\"og:image:width\" content=\"736\" \/>\n\t<meta property=\"og:image:height\" content=\"522\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/gif\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data1\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/pandora-pay-us-to-not-annoy-you\\\/\",\"url\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/pandora-pay-us-to-not-annoy-you\\\/\",\"name\":\"Pandora: Pay Us to Not Annoy You - Technology and Operations Management\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/pandora-pay-us-to-not-annoy-you\\\/#primaryimage\"},\"image\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/pandora-pay-us-to-not-annoy-you\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/wp-content\\\/uploads\\\/sites\\\/4\\\/2015\\\/12\\\/P-Stock-Chart1.gif\",\"datePublished\":\"2015-12-09T02:08:04+00:00\",\"dateModified\":\"2015-12-09T02:08:43+00:00\",\"breadcrumb\":{\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/pandora-pay-us-to-not-annoy-you\\\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/pandora-pay-us-to-not-annoy-you\\\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/pandora-pay-us-to-not-annoy-you\\\/#primaryimage\",\"url\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/wp-content\\\/uploads\\\/sites\\\/4\\\/2015\\\/12\\\/P-Stock-Chart1.gif\",\"contentUrl\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/wp-content\\\/uploads\\\/sites\\\/4\\\/2015\\\/12\\\/P-Stock-Chart1.gif\",\"width\":736,\"height\":522},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/pandora-pay-us-to-not-annoy-you\\\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Submissions\",\"item\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/submission\\\/\"},{\"@type\":\"ListItem\",\"position\":3,\"name\":\"Pandora: Pay Us to Not Annoy You\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/#website\",\"url\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/\",\"name\":\"Technology and Operations Management\",\"description\":\"MBA Student Perspectives\",\"potentialAction\":[{\"@type\":\"性视界Action\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\\\/\\\/d3.harvard.edu\\\/platform-rctom\\\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Pandora: Pay Us to Not Annoy You - Technology and Operations Management","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/pandora-pay-us-to-not-annoy-you\/","og_locale":"en_US","og_type":"article","og_title":"Pandora: Pay Us to Not Annoy You - Technology and Operations Management","og_description":"Pandora falls behind competition on unique operating model.","og_url":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/pandora-pay-us-to-not-annoy-you\/","og_site_name":"Technology and Operations Management","article_modified_time":"2015-12-09T02:08:43+00:00","og_image":[{"width":736,"height":522,"url":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/P-Stock-Chart1.gif","type":"image\/gif"}],"twitter_card":"summary_large_image","twitter_misc":{"Est. reading time":"4 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/pandora-pay-us-to-not-annoy-you\/","url":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/pandora-pay-us-to-not-annoy-you\/","name":"Pandora: Pay Us to Not Annoy You - Technology and Operations Management","isPartOf":{"@id":"https:\/\/d3.harvard.edu\/platform-rctom\/#website"},"primaryImageOfPage":{"@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/pandora-pay-us-to-not-annoy-you\/#primaryimage"},"image":{"@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/pandora-pay-us-to-not-annoy-you\/#primaryimage"},"thumbnailUrl":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/P-Stock-Chart1.gif","datePublished":"2015-12-09T02:08:04+00:00","dateModified":"2015-12-09T02:08:43+00:00","breadcrumb":{"@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/pandora-pay-us-to-not-annoy-you\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/d3.harvard.edu\/platform-rctom\/submission\/pandora-pay-us-to-not-annoy-you\/"]}]},{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/pandora-pay-us-to-not-annoy-you\/#primaryimage","url":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/P-Stock-Chart1.gif","contentUrl":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/P-Stock-Chart1.gif","width":736,"height":522},{"@type":"BreadcrumbList","@id":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/pandora-pay-us-to-not-annoy-you\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/d3.harvard.edu\/platform-rctom\/"},{"@type":"ListItem","position":2,"name":"Submissions","item":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/"},{"@type":"ListItem","position":3,"name":"Pandora: Pay Us to Not Annoy You"}]},{"@type":"WebSite","@id":"https:\/\/d3.harvard.edu\/platform-rctom\/#website","url":"https:\/\/d3.harvard.edu\/platform-rctom\/","name":"Technology and Operations Management","description":"MBA Student Perspectives","potentialAction":[{"@type":"性视界Action","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/d3.harvard.edu\/platform-rctom\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"}]}},"_links":{"self":[{"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/hck-submission\/3829","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/hck-submission"}],"about":[{"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/types\/hck-submission"}],"author":[{"embeddable":true,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/users\/1277"}],"replies":[{"embeddable":true,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/comments?post=3829"}],"version-history":[{"count":0,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/hck-submission\/3829\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/media\/3830"}],"wp:attachment":[{"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/media?parent=3829"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/d3.harvard.edu\/platform-rctom\/wp-json\/wp\/v2\/categories?post=3829"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}