As the stock languished in the teens and single digits throughout late 2011 and 2012 and much of 2013, I explained the company's business model to anybody who would listen (and then laugh). Read the articles at the links. I got everything -- other than the demise of Sirius XM (SIRI) (!!) -- right.
My unique insight on Pandora prompted co-founder Tim Westergren and other top executives at the company to say things like this to me:
Nobody understands what we're doing as well as you. I think it has a lot to do with the fact that you have a background in radio. You're able to understand and see the power of our model while others, lacking that experience, cannot.
Paraphrasing a bit there, but that's pretty close to exactly what Westergren said to me on more than one occasion in 2013.
Fast forward to 2014 and my radio sense (I worked in broadcast radio for roughly a dozen years starting as a teenager) doesn't seem to hold as much weight with Pandora as it did between 2011 and 2013. Suddenly, I know not of what I speak. In Pandora's eyes, I've changed (and gone off my rocker). But it's not so much that I changed; it's just that Pandora hasn't.
I estimate I turned decidedly bearish on Pandora in mid-February 2014. (Since then the stock's down 38%). So now, in response to straightforward interview requests that seek answers from the company's seemingly invisible CEO, I get this flavor of wholly unprofessional reply (taken from an unedited email received from Pandora corporate communications on April 25, 2014 at 10:40 a.m. Pacific time):
Responding to your request for an interview. We'll get there, but we want to sit down first and air out some of the issues that are clearly on your mind. Some of your recent comments have concerned us and we want to get our relationship back on a more constructive footing.
There was a long, healthy, open dialogue between you and Pandora and we don't understand why it has taken such a turn for the worse, particularly as we continue to successfully execute a strategy to be the leading internet radio provider.
Before you sit down with our senior executives, we need to establish a more constructive basis for our relationship. I hope we can set up a meeting soon to hit the reset button. Sound good?
In other words, we once felt like we had you in our back pocket, but we don't feel that way anymore. As such, we need to reel you in before we give you access.
That's telling on several levels and absolutely material to investors. You need to know if Pandora ducks engagement simply because I turned bearish. Why won't they let Brian McAndrews (he's the CEO) answer questions about data? Are they worried that he's incapable of having the conversation?
In a phone conversation with Pandora PR, I said everything (and more) I have said and will say in this and other articles. I was told -- in a nutshell and in no uncertain terms -- that my recent work has been extreme, radical and outrageous, bordering on the ramblings of a mad man. Funny ... because I was quite the mad man in 2011 and 2012 when I was writing about how Pandora would crush people short the stock and that it was outclassing broadcast radio at its own game. Pandora didn't seem to mind the way I delivered that message. But, suddenly, they're not so comfortable with my approach -- one that's constant across companies and sentiments. I cheer as loud and hard as I boo. And vice versa.
From a personal standpoint, I like the people who work at Pandora. But I never considered them my friends. In this business, you can't. There can never be loyalty in the relationship between somebody who does what I do for a living and a company. Part of me feels bad for taking a bearish turn and exposing Pandora as I have, but I feel as strongly about what I'm writing now as I did between 2011 and 2013. As such, I simply can't keep the way they have decided to handle me secret; readers/investors need to know how they're operating in this regard. From there, they can make their own decisions on the present and future state of Pandora.
Anyway, my work is starting to make its way out of the financial media niche.
On Wednesday, widely-read industry publication Digital Music News summarized my Tuesday article -- The Company Most Likely to Collapse in 2014. Digital Music News refers to me as a "top analyst," which makes me laugh as hard as it probably does you. I'm a columnist. With a well-thought out and educated opinion. Sometimes I'm right. Sometimes I'm wrong. But I think my prescient calls on Pandora over the last three years give me the street cred to go where I'm going now.
And Pandora's scared because they're being called out for things people inside the building are and absolutely should be concerned about.
It goes something like this ...
I still have the utmost respect for what Pandora does in the two core aspects of its business. (I have said as much in recent, albeit largely pessimistic articles).
One -- there's nobody better at music personalization and discovery. Two -- Pandora's sales team -- culled, in significant part, from Clear Channel staff -- is fantastic. It does an excellent job selling what amounts to standard (though highly-targeted) broadcast radio advertising. That's all fantastic. It's exactly what brought Pandora to the dance. And, to a certain extent, it should remain the company's bread and butter. However, a hyper-focus in these two areas could -- without a serious change of course -- doom Pandora.
Pandora likes to pass that off as hyperbole. But, again, they were fine with the same level of intensity and pluck in my writing when I was (rightfully) bashing broadcast radio. I call it "regular radio" in the headline of this article because it's easy for readers to categorize.
"Regular radio" -- as in the one we all grew up with. The one where you push the button and choose AM or FM. But to tell this story properly, you have to understand that "regular radio" is no longer run of the mill. It really never has been. But it certainly did suffer through somewhat of a lull as Pandora burst onto the scene post-Apple (AAPL) iPhone.
In 2011 and into 2012, it was perfectly fine, dandy and accurate to refer to broadcast (aka terrestrial) radio as "regular." But something happened -- Clear Channel's hiring of Bob Pittman started to take, Cumulus Media (CMLS) decided to wake up, I don't know. All I know is that "regular radio" now looks as dynamic as Pandora did when it was busy disrupting and Pandora looks as deer in the headlights as "regular radio" did 2-3 years ago.
You can't simply make an analysis on the basis of what's happening today. In and of itself, Pandora's present strategy is solid. However, you have to consider that strategy in a forward-looking context. Put another concrete way -- when regular radio lulled it was busy lashing out at Pandora rather than evolving its own practices. It still had hundreds of millions of listeners and was growing -- even if modestly -- but it wasn't anywhere near prepared to effectively compete in a digital world led by tech companies such as Pandora and Spotify.
In a short period of time, regular radio shifted. In business jargon, they pivoted and displayed impressive nimbleness. (Or maybe they were shifting and being nimble all along and I didn't notice or it was hidden. Doubtful, but that's a possibility). Regular radio stays true to and grows its core, but fully realizes it must be dynamic beyond its core of selling 30-second spots and sponsorships.
OTOH, Pandora refuses to extend itself beyond the two aforementioned areas that brought it to the dance. As I wrote Tuesday:
Pandora's diving head first into dangerous territory. It's increasing its spot load and finding new ways to put advertising in front of its users. You know -- it's doing one of the very same things that's a big negative for traditional radio. On its own that might not be a bad thing, but consider some color ...
If Pandora was a nimble company with a handle on the trajectory of Internet radio and the music industry it would expand its horizons to grow revenue beyond advertising. It would not compromise and sacrifice the user experience with more advertising; instead it would -- as I have been banging on for months -- build a data business.
... traditional radio's doing what it can to evolve. It's moving beyond its comfort zone of simply selling commercials ...
That's why I can drive in my car -- like I was Wednesday -- and listen to a Cumulus-owned sports radio station out of Dallas via Clear Channel's iHeart Radio app and hear a promotional commercial for streaming radio service Rdio. If I sat in front of anybody, let alone a broadcast radio executive, two years ago and predicted that would happen in less than two years they would have told me I was insane. It's quite incredible to watch regular radio operate in anything but regular fashion. What we're seeing from Clear Channel and Cumulus is pretty much unprecedented.
You have Cumulus stations streaming via a Clear Channel platformYou have Cumulus and Rdio already in and ready to expand a dynamic partnership. It's almost as if the regular radio companies and the pure-play Internet radio guys willing to partner are saying something like ... We need to ensure that people can access our content so let's do some interesting things and get it out there. We'll iron out issues over sharing revenue and such as we go. Maybe that is exactly what they're saying. I don't know. But I do know I love the product of their collaboration ... a collaboration that's only in its infancy.
Meantime, Pandora maintains an us against them attitude that'll do them about zero good going forward. Name one meaningful Pandora partnership with another company in its broad space. You can't. Because they don't exist. Even though they could. And if they did, they would be spectacular (e.g., Ticketfly).
Instead of rolling out data products that could benefit musicians and record labels, Pandora drags its feet. Breaking the promise Tim Westergren made when he spoke of touring heat maps as early as 2008. Pandora would rather fight the royalty fight in court than show the music industry what an excellent partner they can be -- thanks to data -- royalties aside.
Instead of using their data to do something other than sell advertising, Pandora's standing still while other companies turn data into a new revenue line. Regular radio's out in front with respect to using data to not only "make a case for the value of their audience," but become a more dynamic and "valuable marketing platform for advertisers and media planners."
Pandora continues to chip away at broadcast radio's $14 billion (or so) advertising market. Again -- not a bad strategy. It has worked well so far. But growth will moderate as Pandora seeks a larger share of that pie. The company needs to be open to not only maximizing the power of its historical and real-time data for the music industry and brands, but broadening the content it offers listeners.
Spotify. Rdio. Clear Channel. Cumulus. They're already here. They're going to keep coming. And they're no longer screwing around. Pandora's tunnel vision was fine in 2011, 2012 and 2013, but for 2014 and beyond it's the equivalent of a once vibrant tech company stuck static and underestimating its competition with its head in the sand.
Pandora's dead set on executing a strategy we've seen before. It's actually becoming less of a technology company and more of a radio company. That's boring to investors and it's going to prove boring to listeners. It's also the height of arrogance and irony. Incredibly, the radio companies -- seemingly out of nowhere -- are starting to talk and walk more like technology companies. That makes them better partners to the music industry and, increasingly, more interesting alternatives for listeners than a Pandora that's preoccupied with how to get more ads in front of users who have unlimited options for listening to music and related content.
--Written by Rocco Pendola in Santa Monica, Calif.