Modern world is full of new inventions and useful technologies and applications for the societies in order to make people’s lives more convenient and colorful. Music has always been a part of a great entertainment, relaxation, love, sadness and other events and feelings in the life of every individual. Still, every person has his own preferences, and our tastes in music differ, and often, quite radically. Tim Westergren, the founder of Pandora Media, after working with various film directors, realized that there could be a way to create a system that will give people an opportunity to find music they like and to listen to more songs of their preferences easily. This is how the idea of Pandora Internet Radio began its path (Christopher, 2010).
In the year 2000, the project with a name Music Genome came into the world. The idea behind this project is that every song within the system goes through a careful analysis by special professionals, who are usually the musicians and have strong historical backgrounds in musical field. This analysis helps to evaluate a song and to determine key things that make this particular song as it is and that attract the listeners. In such a way, this analysis assists in categorizing music and offering special collections, where people can see the songs they may like in accordance with the music they already prefer (Christopher, 2010).
After four years of work, Music Genome Project, under the lead of Tim Westergren, launched Pandora Internet Radio, and it was a real boom in the musical industry. The process is very easy, because a new user can chose the songs or artists that he or she likes and then the platform offers him playlists with similar songs that are supposedly of his or her taste. For a modern world, where people enjoy music and usually use internet to look for music and to buy it, it was a great deal and a strong breakthrough (Christopher, 2010).
Pandora Media is operating in the market for almost 12 years now, and, without any doubt, throughout these years various events had an impact in the company’s activities and led to certain achievements and difficulties at the same time. Some of the latest key events that had a significant influence on Pandora were the following (Pelts, 2015):
the acquisition of Ticketfly;
The acquisition of a terrestrial radio station, KXMZ-FM;
The acquisition of a royalty license (a license from the Radio Music Licensing Committee);
Establishment of settlement with the companies from the Recording Industry Association of America;
The release of iPhone Pandora Application.
All of those events had essential costs for the company, but all of them had a place for existence, because they should increase the revenues of the companies and should positively contribute to the image of Pandora Media. Those acquisitions, application creation and settlement have an importance for the company not only in financial terms, but also in terms of spreading the influence of Pandora over wider layers of society. For instance, iPhone application is a serious step, because it offer the users of Apple products to have an easier access to their favorite music, and the number of users of iPhones is extremely high, as it is one of the most influential and famous companies within the industry.
Now we can turn to the financial analysis of Pandora Internet radio and look at the key financial ratios in order to observe the profitability of the company and its overall performance within the industry. Below you can see some of the financial ratios for Pandora Media, as of the end of the year 2015, that have an impact on the operations of the company and have a significance for all of its stakeholders. In order to make a more thorough analysis, there is also a data for the end of the year 2013 (Financials.morningstar.com).
Return on Equity: -37.49% (2013); -25.58% (2015)
Return on Assets: - 19.23% (2013); -17.05% (2015)
Return on Invested Capital: -37.05% (2013); -18.89% (2015)
Net Profit Margin: -8.23 (2013); -14.58% (2015)
Asset Turnover: 2.15 (2013); 1.17 (2015)
We can see that the number for Pandora Media are negative, which definitely does not indicate a good financial situation for the company. As for the asset turnover, we see a positive number, though not very high. Still, it indicates that the company still manages to generate revenues per dollar of assets. The point is that the company made many acquisitions, and, as the one of the paragraphs above mentions, we can say that the costs of those acquisitions significantly declined the profits of the company for a certain period. We can see that from the year 2013 certain numbers got better by the end of the year 2015, which indicated that the company works on the improvement of its financial situation and strives to generate higher revenues in order to show a good level of profitability in future. The fact that the asset turnover, however, significantly decreased in the year 2015 in comparison to the year 2013, indicates that the settlement that Pandora Media established with RIAA required significant financial investments (around $90 millions) (Pelts, 2015). Still, the decline in the asset turnover does not indicate that the company will be going downwards in the future. The investments of capital can justify themselves in the long-term and lead to a significant breakthrough in the operations of Pandora Media.
Though Pandora Media is sort of the beginner in the industry of the organized system of musical records online, there is still a danger of competition. There is a big danger for Pandora Internet Radio from Apple that also launched iTunes Radio and from Spotify, another large platform that also offer its users a way to find the music they like according to their preferences. Without any doubt, the major competitive advantage of Pandora media is that it was the ‘first mover’ in the industry. First-mover is a significant strength, because it implies that the company brought the idea to the market and managed to recognize the need of the customers that no other company had recognized before. However, the world is aware that Apple Corporation I a giant with the industry of various technologies, and many people go straight to Apple if they have a need in some technologies, applications and things associated with that. Apple is a player with a world’s popularity, and it represents a significant threat for Pandora Media. Though Pandora Internet Radio manages to operate (for instance, in march 2014, its earnings per share reached $40), Apple still gains its momentum and takes more and more customers from Pandora, the first company that offered the society an easy way to customize their musical tastes and to have an access for more collections of new music (McKenna, 2014).
There are other significant competitors of Pandora Radio, such as Songza and iHeartRadio, which represents a threat for the authority of the company (Forbes, 2014). In order to observe the situation of Pandora Media in terms of competition more precisely, it will be useful to evaluate the company against four generic blocks of competitive advantage, which are efficiency, quality, innovation and customer service.
Efficiency: in order to analyze the efficiency of the company, we can look at the asset turnover ratio and at the revenue per employees. The industry average for the asset turnover in the broadcasting media industry, in which Pandora is operation, is 0.49. We can see that this number is significantly lower than the one for the company we are analyzing. It implies that Pandora Media is doing well within the industry in terms of generating revenues per dollar of assets. Unfortunately, there are no available numbers for the revenue per employee for the company, but taking into consideration the fact, that Pandora’s asset turnover is quite good and that the company continuously works on the improvement of its performance, we can suppose that the level of company’s efficiency is quite good among the competitors (Csimarket.com).
Quality: in terms of quality, we can say that the fact that Pandora Media was the first one within the field of its operations plays a significant role for the users. Pandora Media introduced the concept to the society, made the platform easy to use and offered a high quality of the service for the customers. There is a point that other players, for instance, Songza, uses the knowledge of the experts in music, rather than computer algorithm designed by professionals as Pandora does. However, there is no evidence that this scheme makes the quality of the service better, but we can imply that it can effect efficiency, because the load of the music may be lower for Songza, than for Pandora. In such a way, in terms of quality, Pandora Media does a good work for the society (Forbes, 2014).
Innovation: this point plays a significant role within the broadcasting media industry, because recognition of innovation and its careful implementation helps to strengthen the competitive advantage of the company and offers various growth possibilities. Above we have analyzed that Pandora Media is actively working on the improvement of its performance and by making acquisitions and settlement, it wants to offer more alternatives for the users, which we can also say is an aspect of innovation. Pandora Media, as a ‘first-mover’ made a breakthrough in innovation by offering this service. For instance, in the year 2011, the company has received BMW Supplier Innovation Award, which is a significant win (Investor.pandora.com). Thus, the point is that innovation is big part of the company’s operations and will help the company to stand among the competitors.
Customer Service: Pandora Media offers a unique service for its customers and it always strives to offer a wide assortment of the musical records and wants to achieve high level of customers’ satisfaction. Customer service plays a significant role for the company, because within this industry it is one of the key elements for success. Settlement that offers a higher number of records, including old songs, about which one of the sections above mentions, is an essential plus for the company, because it thinks about its customers and want to make their experience with internet radio more pleasant and of higher quality.
We can see that Pandora Media is doing quite well in terms of competition, despite significant threats from the companies that also work with online radio platforms. It is hard to judge, whether the first-mover advantage will help Pandora to survive longer and whether all of the investments and works for the customers’ satisfaction will justify themselves. However, we can say that the company does not give up and on the long-term wants to overcome the competition and return the title of the best within the broadcasting media industry.
Works Cited
Christopher, Benjamin. "The Story of Pandora Radio." Why Didn’t I Think of That. 17 Feb. 2010. Web. 06 Mar. 2016. <http://thinkofthat.net/2010/02/17/the-story-of-pandora-radio/>.
"Competition For Pandora Increases As Google Buys Music Streaming App Songza." Forbes. Forbes Magazine, 9 July 2014. Web. 08 Mar. 2016. <http://www.forbes.com/sites/greatspeculations/2014/07/09/competition-for-pandora-increases-as-google-buys-music-streaming-app-songza/#5b1fb9623b9d>.
McKenna, John. "Is Pandora Media's Competitive Advantage Eroding? -- The Motley Fool." The Motley Fool. 2 Apr. 2014. Web. 06 Mar. 2016. <http://www.fool.com/investing/general/2014/04/02/is-this-pandoras-witching-hour.aspx>.
"Pandora Media Inc." Growth, Profitability, and Financial Ratios for (P) from Morningstar.com. Web. 06 Mar. 2016. <http://financials.morningstar.com/ratios/r.html?t=P>.
"Pandora Media Efficiency Comparisons." Pandora Media, Inc. (P) Efficiency Comparisons to Industry Sector and S&P. Web. 08 Mar. 2016. <http://csimarket.com/stocks/P-Efficiency-Comparisons.html>.
"Pandora Receives BMW Supplier Innovation Award." Pandora Media. 07 Nov. 2011. Web. 08 Mar. 2016. <http://investor.pandora.com/phoenix.zhtml?c=227956&p=irol-newsArticle&ID=1627301>.
Pelts, Shirley. "Key Events That Can Impact Pandora Media's Operating Results." Yahoo Finance. 26 Oct. 2015. Web. 06 Mar. 2016. <http://finance.yahoo.com/news/key-events-impact-pandora-media-114944955.html>.
