Pandora Media
Overview
Pandora (P) is the world’s most powerful music discovery platform, offering a personalized experience for each of its listeners wherever and whenever they want to listen to music—whether through earbuds, car speakers or home audio/video equipment. The company's vision is to be the definitive source of music discovery and enjoyment for billions of users. Pandora is available as an ad-supported service, a radio subscription service called Pandora Plus and an on-demand subscription service called Pandora Premium. The majority of its listener hours occur on mobile devices, with the majority of its revenue generated from advertising on its ad-supported service on these devices. The company offer both local and national advertisers the opportunity to deliver targeted messages to its listeners using a combination of audio, display and video advertisements. The company also generate revenue from subscriptions to Pandora Plus and Pandora Premium. Founded by musicians, Pandora also empowers artists with valuable data and tools to help grow their careers and connect with their fans.1
At the heart of its service is its set of proprietary personalization technologies, including the Music Genome Project and its playlist generating algorithms. The Music Genome Project is a database of over 1,500,000 uniquely analyzed songs from over 200,000 artists, spanning over 660 genres and sub-genres, which its team of trained musicologists has developed one song at a time by evaluating and cataloging each song’s particular attributes. The Music Genome Project database is a subset of its full catalog available to be played. When a listener enters a single song, artist, comedian or genre to start a station, the Pandora service instantly generates a station that plays music or comedy the company think that listener will enjoy. Over time, its service has evolved by using data science to further tailor the listener experience based on listener reactions to the recordings the company pick. Listeners also have the ability to add variety to and rename stations, which further allows for the personalization of its service. Pandora Media has integrated this technology into Pandora Premium, giving listeners the ability to search and play any track or album as well as offering unique playlist features tailored to each listener's distinct preferences.
For the three months ended September 30, 2017, the company streamed 5.15 billion hours of radio, and as of September 30, 2017, the company had 73.7 million active users during the prior 30-day period and 5.19 million paid subscribers. Since the company launched the Pandora service in 2005 its listeners have created over 12 billion stations.
The company currently provide the Pandora service through three models:
- Ad-Supported Service. The company's ad-supported Pandora service allows listeners to access its music and comedy catalogs and personalized playlist generating system for free across all of its delivery platforms. Listeners can obtain more features, such as skips and the ability to replay tracks, by watching an advertisement.
- Subscription Service—Pandora Plus. Pandora Plus is a paid, ad-free subscription version of the Pandora service that includes replays, additional skipping, offline listening, higher quality audio on supported devices and longer timeout-free listening.
- Subscription Service—Pandora Premium. The company's on-demand subscription service, Pandora Premium, launched to select listeners on March 15, 2017, with general availability in the United States on April 18, 2017. Pandora Premium is a paid, ad-free version of the Pandora service that offers a unique, on-demand experience, providing users with the ability to search, play and collect songs and albums, build playlists on their own or with the tap of a button and automatically generates playlists based on the user’s listening activity. The features of Pandora Plus are also included in Pandora Premium.
A key element of its strategy is to make the Pandora service available everywhere that there is internet connectivity. To this end, the company make the Pandora service available through a variety of distribution channels. In addition to streaming its service to computers, Pandora Media has developed Pandora mobile device applications ("apps") for smartphones and mobile operating systems, such as the iPhone and Android and for tablets including the iPad and Android tablets. The company distribute those mobile apps free to listeners via app stores.
The company expect to continue to make enhancements to Pandora Plus and Pandora Premium, which will require engineering effort, as well as other resources. In addition, in connection with the launch and continued operation of these services Pandora Media has entered into direct license agreements with major and independent record labels, some of which include substantial minimum guarantee payments. In order for Pandora Plus and Pandora Premium to be successful, the company will need to attract subscribers to these new service offerings. The market for subscription-based music services, including on-demand services, is intensely competitive, and its ability to realize a return on its investments in these service offerings will depend on its ability to leverage the existing audience of its ad-supported service, its brand awareness and its ability to deliver differentiated subscription services with features and functionality that listeners find attractive. Refer to its discussion of these matters in Item 1A—"Risk Factors".
Ticketing Service
The company completed the sale of Ticketfly on September 1, 2017. Prior to the date of disposition, the company operated its ticketing service through its former subsidiary Ticketfly, a leading live events technology company that provides ticketing and marketing software and services for clients, which are venues and event promoters, across North America. Ticketfly's ticketing, digital marketing and analytics software helps promoters book talent, sell tickets and drive in-venue revenue, while Ticketfly's consumer tools help fans find and purchase tickets to events. Tickets are primarily sold through the Ticketfly platform but are also sold through other channels such as box offices.
Ticketfly's platform provides ticketing and marketing services for venues and event promoters across North America and makes it easy for fans to find and purchase tickets to events, and also gives artists a means to more effectively promote their events. The company also connect its listeners to events through promotions on its internet radio service.
Refer to Note 6 "Dispositions" in the Notes to Condensed Consolidated Financial Statements for further details on the Ticketfly disposition.
Recent Events
Convertible Redeemable Preferred Stock
In June 2017, the company entered into an agreement with Sirius XM Radio, Inc. ("Sirius XM") to sell 480,000 shares of Series A redeemable convertible preferred stock ("Series A") for $1,000 per share, with gross proceeds of $480.0 million. The Series A shares were issued in two rounds: an initial closing of 172,500 shares for $172.5 million that occurred on June 9, 2017 upon signing the agreement with Sirius XM, and an additional closing of 307,500 shares for $307.5 million that occurred on September 22, 2017 upon the receipt of antitrust clearance and the completion of other customary closing conditions. Refer to Note 10 "Redeemable Convertible Preferred Stock" in the Notes to Condensed Consolidated Financial Statements for further details on the redeemable convertible preferred stock sale.
Ticketfly Disposition
On September 1, 2017, the company completed the sale of Ticketfly, its ticketing service segment, to Eventbrite Inc. ("Eventbrite") for an aggregate unadjusted purchase price of $200.0 million. The aggregate unadjusted purchase price consists of $150.0 million in cash and a $50.0 million Convertible Promissory Note, which were paid and issued at the closing of the transaction. The Convertible Promissory Note was recorded at its fair value at the date of sale, which resulted in a discount of $13.8 million. The aggregate purchase price was further reduced by $4.9 million in costs to sell and $8.6 million in working capital adjustments and certain indemnification provisions, for a net purchase price of $172.7 million. Refer to Note 8 "Convertible Promissory Note Receivable" in the Notes to Condensed Consolidated Financial Statements for further details on the Convertible Promissory Note. In the three months ended June 30, 2017, the assets and liabilities of Ticketfly were classified as held for sale, and the company recognized a goodwill impairment charge of $131.7 million. The impairment charge was based on the fair value of the net assets as implied by the estimated purchase price of $184.5 million as of June 30, 2017. In the three months ended September 30, 2017, the company recognized a loss on sale of $9.4 million in the general and administrative line item on its Condensed Consolidated Statements of Operations, which was based on an adjusted net purchase price of $172.7 million as of September 1, 2017. Refer to Note 6 "Dispositions" in the Notes to Condensed Consolidated Financial Statements for further details on the Ticketfly disposition. KXMZ Disposition
On August 31, 2017, the company completed the sale of KXMZ, an FM radio station based in Rapid City, South Dakota. The sale did not result in a material impact to its condensed consolidated financial statements. Refer to Note 6 "Dispositions" in the Notes to Condensed Consolidated Financial Statements for further details on the KXMZ disposition. Australia and New Zealand
On June 27, 2017, the company announced a plan to discontinue business activities in Australia and New Zealand. The related restructuring charges in the nine months ended September 30, 2017 primarily relate to a reduction of headcount of approximately 50 employees, which resulted in employee severance and benefits costs offset by a credit related to non-cash stock-based compensation expense reversals for unvested equity awards. The dissolution of the Australia and New Zealand business operations was substantially completed in the three months ended September 30, 2017. These restructuring charges did not have a material impact on its financial statements.
