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Analysts hit Pandora. “Inside Radio” 3/8/12
Investors are getting nervous about Pandora. The stock fell 24% today as several analysts cut their rating on the stock after the company forecast higher-than-expected losses.
Citigroup analyst Mark Mahaney was among them, citing “mobile monetization challenges” as costs increase faster than revenue. “As a speculative buy, with no profitability track record and no near-term profitable outlook, Pandora always carried very little margin for error – and now there’s error,” he tells clients.
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Pandora’s stock lost more than a fifth of its value in after-hours trading late Tuesday as investors expressed concerns that the company’s revenue isn’t keeping up with its expense growth. Pandora reported a fourth-quarter loss that was more than twice as big as a year earlier and said its losses in its first quarter would be as much as ten-times what analysts had been expecting.
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Analyst dumps on Pandora Media again
26 September, 2011 12:00:00
Richard Greenfield at BTIG has never been a fan of Pandora Media, panning the streaming audio company even before its IPO. Now the bearish analyst has turned even more bearish on the stock. “We view social as one of Pandora’s key problems,” Greenfield wrote in his latest analysis. He doesn’t think the latest redesign of Pandora’s website is up to snuff on the social media side and notes that Pandora was notably missing as Facebook announced new music partners. So even as the BTIG analyst increased his short-term financial estimates for Pandora – notably, he’s now expecting the company to turn cash flow positive this year – he’s maintained his “sell” rating on the stock and lowered his target price to $3.75 from his previous $5.50. Pandora closed Friday (9/23) at $10.75.
The release of the new iHeartRadio personalized radio service by Clear Channel was one example of new competition that prompted Pandora to eliminate the usage cap on its free service. Greenfield figures that “evaporated” a key benefit of Pandora’s subscription service, so he expects a secular decline in that side of the business. So he’s pulled back on his revenue growth estimates over the next four years, but increased his listener hours estimates. That means higher music royalty payments and lower profits in the long run.
RBR-TVBR observation: Pandora’s boosters tend to be totally focused on top line growth, both in ad sales and listener sign-ups, ignoring the huge royalties that Pandora has to pay to SoundExchange, regardless of whether it manages to sell enough new ads to cover new listening.
The bet seems to be that some larger company (Google or Microsoft, for example) will want to buy it because of its growth rate. But we’re pretty sure that those Internet giants have bean counters who know how to tally royalty payments as well as the metrics that Pandora executives prefer to focus on.
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Lew Dickey on Pandora
· Lew Dickey See An Upside For Broadcasters On The Net
Still Not A Pandora Fan
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Lew Dickey
YESTERDAY (NET NEWS 9/19), ALL ACCESS reported that in an interview withCNBC, CUMULUS Chairman/CEO LEW DICKEY dismissed the concept that radio will suffer at the hands of new technologies and services, such asPANDORA and iHEARTRADIO, calling them “overblown.”
DICKEY read the ALL ACCESS story, and reached out to expand and clarify on the interview.
“While I don’t believe PANDORA has a viable standalone business model, I do believe that it makes sense for a large broadcaster like CLEAR CHANNEL to leverage its fixed-cost base to extend their brands and alternative or personalized listener experiences. Furthermore, I think it will be difficult for companies like PANDORA to compete successfully over the long term with large broadcasters with scale who invest in this space.”
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One Mass Medium Left Standing: “Radio is Great for Carpet Bombing”
A quote about just how great radio is
We heard something recently that people in radio can really embrace because it lays out the case that radio remains a vibrant medium and the key source for people to experience music. What may surprise you is the source of the quote.
Can you guess who the following quote is from? Was it…
A. Jeff Haley, President and CEO of the Radio Advertising Bureau
B. Joe Kennedy, CEO of Pandora Media
C. Bob Pittman, Chairman of Media & Entertainment Platforms, Clear Channel Communications
Here is the quote:
“A lot of people are surprised at how huge radio remains today – AM and FM. According to Arbitron, 93% of the US population age 12 and over tunes in to radio every week. That there were 234 million Americans, on an average they listen for over 13 hours a week, almost two hours a day. That constitutes fully 80% of the music that the average American consumes. We believe that radio remains huge today and will continue to be used into the future for really two reasons: The first is serendipity. The way our brains are wired, music is at its most entertaining when we don’t know what song is coming next. We don’t know what note or what chord change is coming next. There’s an element of surprise and discovery that keeps the experience fresh and vital. Second, audio entertainment is unique among the forms of entertainment in that we most frequently consume it while we’re multi-tasking. We’re driving. Or partying. Or cooking. Or working at spread sheets. So it shouldn’t be surprising how huge radio remains, nor how important the car and the home are as the places where all this listening takes place.”
The correct answer is B. That was Joe Kennedy speaking Tuesday, September 6, 2011 to the Citi 2011 Technology Conference in New York.
Of course, he went on with the pitch we’ve heard from him before that Pandora is taking the best part of what has made radio successful and doing radio one better via the Internet.
RBR-TVBR observation: Radio ad sales people just might want to print that out and carry it along to show clients who think that broadcast radio is quickly being replaced by online music.
We also add that knowledge is power and the key to success for radio will be to learn as much as one can about today’s consumer. Know the habits and intentions of today’s consumer - which is the listener - then radio wins. It is not about radio ratings it is about retail consumer data
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Pandora Q2 Revenues…cash flow positive, but less than LY
Pandora Media posted record results for Q2
Pandora Media beat Wall Street expectations for its fiscal Q2 (May-July), with revenues up 117% to $67 million. Perhaps more importantly, operating cash flow turned positive, although it was still down from a year ago.
RBR-TVBR observation: Much better than the Q1 results. Content acquisition, which is what Pandora calls its music royalties, were $33.7 million. That took more than 57% of the revenues coming in. Would you want to be in that business?
Pandora Shifts Ad Gears
Pandora targeting local advertising for growth (audio)
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Until now Pandora Media has gotten nearly all of its advertising revenues from national advertisers, but that is changing. In his first quarterly conference call with Wall Street analysts, and after reporting record results, Pandora CEO Joe Kennedy said the company is “investing aggressively” in its sales force – and he made it clear that selling local advertising is where the company sees big growth coming.
Kennedy:
Kennedy noted that local advertising tends to command higher CPMs than national. Pandora has already started a local sales initiative in Portland, OR. That’s still too small to have a real impact on the company’s total numbers – but it is just the beginning.
The CEO focused on the market-by-market data it recently released from Edison Research to make his pitch that Pandora is a strong competitor to local radio. The figure claimed in the quarterly report is that Pandora now claims 3.6% of all US radio listening. Kennedy pointed to the Edison calculations of AQH numbers to contend that Pandora is now a major player in every market as a “standalone radio station” in delivery of 18-34 listeners.
The objective over the next few years is to monetize that listenership by selling local ads. The company is hiring and plans to put feet on the street.
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Chris Note: Ummm. Could be time consuming, expensive, and difficult sell.
Radio Stands to Gain the Most
Radio
It stands to benefit from the digital revolution
Apr 4, 2011
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These past few years have been hard for traditional radio, and the recession has only been part of it. There’s a feeling among radio people that their medium no longer gets the respect it deserves as the great workhorse of media, especially among a very critical audience, media planners and buyers. And add on top of that the rise of Pandora, the online radio giant that seems to be adding thousands of new subscribers by the day, and you have a cloud of gloom hanging over radio not unlike the gloom that’s hung over newspapers and magazines for the past decade. It’s as if radio were destined to follows those two media into decline. But in fact the prospects for radio are far brighter. Rather than being like newspapers and magazines, radio is far more like television, its more glamorous sister medium, and television is clearly doing well and destined to do even better. Like TV, radio is ad-supported and free to consumers, whereas print, while ad-supported, also charges subscription fees, and that’s behind so much of its suffering. Readers won’t pay when they can access the same information online, which explains why newspaper and magazine circulations have taken such a hit. Both radio and TV have suffered no such decline in audience. TV audience numbers are up, and so are radio’s. Arbitron’s latest Radar listening report says an average of 241.6 million people aged 12 and older listened weekly in 2010, an increase of more than 2 million listeners over 2009 and more than 5 percent over five years ago. More significantly, though, both television and radio stand to gain from the very forces that are hurting print, led by the internet. They are the beneficiaries. Their advantage can be summed up in one word: ubiquity. The great digital revolution, as so many analysts have pointed out, is allowing consumers to access their media wherever they want and whenever they want, and that’s becoming more so as more and more Americans upgrade their mobile devices. They can watch TV, email and surf the internet. They can also listen to radio. And imagine what that could mean for radio. As mobile devices become ubiquitous the demand for audio content will remain healthy and likely expand as consumers are able to listen in more locations than ever. The problem is not that radio is hobbled with a doomed technology but that it’s failed to take advantage of the opportunities these new digital technologies have made available. The television industry has rushed into digital, creating new ways to deliver content anywhere anytime. Rather than run from the new technologies, the networks have been buying into them, snapping up digital properties. The networks clearly see video as their province, whatever the platform, and are determined to dominate anywhere/anytime TV as they have so long dominated television broadcast over the air waves. Just consider all the different offerings and venues available to media consumers where they can watch content from the broadcast and cable networks. And of course there are the networks’ own web sites, which make available all sorts of video options, from reruns of old shows to promotions of shows about to debut. They see huge amounts of traffic. And increasingly that content is available on mobile platforms. For example, the NCAA March Madness on Demand app provides mobile access to all the games of the men’s basketball tournament. After the first week of the 2011 tournament, site visits were up 47 percent over last year, resulting in 10.3 million hours of live streaming video to iPads, iPhones and other mobile platforms. Where is radio by comparison? Way behind. Broadcast companies have watched as others, like Pandora, have risen to dominate the emerging audio venues and they are equally far behind in mobile. The hope for radio is that it looks more and more to the TV industry in reinventing itself, and there’s some evidence that’s beginning to happen. One need look no further than Clear Channel’s recent acquisition of music streaming service Thumbplay to add to its iHeartRadio online radio service.
There’s Hulu, countless video services, such as Netflix, where viewers can catch reruns of favorite TV shows and on-demand services from most cable providers with rich catalogs of content.
The man behind the deal was Robert Pittman, a longtime media executive who founded MTV and went on to top positions at AOL and Time Warner. He recently joined Clear Channel with the title of chairman of media and entertainment platforms.
Pittman is no slouch when it comes to music, to digital and to leveraging one’s media assets across multiple platforms.
Of the deal, Pittman was quoted as saying:
“Joining Thumbplay’s custom radio and subscription services with Clear Channel’s streaming expertise, iHeartRadio’s internet and mobile audio and music services, including 750 online radio stations, digital-only stations and apps, will create an unsurpassed integrated music product. Couple this with Clear Channel’s promotional power to reach 228 million people on a monthly basis, and you have a combination nobody else can match.”
CHRIS NOTES: As a commercial delivery vehicle the article overlooks the “Elephant in the Living Room” for TV: DVR. In DFW DVR use now exceeds 50%. The nation will soon follow. The impact of commerical skipping and delayed viewing I hear very little about. In my opinion this remains a crippling long term digital development for video commerical exposure. As the income levels rise poportionatley with DVR usage this has become an especially degrading factor to media plans that target higher income households. But that’s just my opinion.
“Women’s attitudes toward radio are positive, and there are no signs that music streaming services like Pandora are eroding radio usage.”
“The news is mostly good”
“Less love for radio among younger listeners”, though Alan Burns says “the news is mostly good.”
That’s the headline from Burns’ second annual “Here She Comes – 2011” study of 2,000 women who are listeners to AC and CHR. Yesterday was the first of four Thursday webinars, and Alan laid out the bullet points – “Women’s attitudes toward radio are positive, and there are no signs that music streaming services like Pandora are eroding radio usage.”
But – “on the other hand, there’s less love for radio among younger listeners, and while wireless broadband in cars isn’t going to kill radio, it will lower usage somewhat.” He also uses the F-word – “Fragmentation.” He predicts it will be the result of more devices in the cockpit, “since broadband will bring more non-local stations into cars.”
The research shows about 2% of women already have Internet access in their cars. From that starting point, Burns predicts what will happen – 69% of that still-small segment who have the Internet available still listen to over-the-air radio at least most of the time they’re in the car.
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Contributed by A. Danilov. Thanks
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“Pandora is not Radio” by Bob Pittman
Bob Pittman spells out why Pandora is not Radio
In his new role as Chairman of Media and Entertainment Platforms for Clear Channel Communications, Bob Pittman appeared Wednesday as a featured speaker at a Credit Suisse Investor Conference in Miami. He gave attendees an earful about why he invested $5 million in Clear Channel and on why radio is not going away.
“Radio is still America’s companion,” Pittman said, “you can’t live without it.” But that was just a little part of the cheerleading warm-up. Then he got down to dealing with what’s supposed to be the latest threat to radio.
“Radio is quite different than playlists or music lockers. Typically people have had their radio they love and they’ve had their music collection. Things haven’t changed. They still have a music collection and they have the radio stations. One is programmed for them, one is where I program stuff myself and look through it and play it and have specific interests,” Pittman explained.
“What makes radio different than custom radio – a Pandora-like service, playlist, or music locker, Spotify, etc. – is that radio’s curated and dynamically changes. What that means is we have to do an enormous amount of research every week to understand who that tribe is we’re programming to and what their tastes are. And guess what – those tastes change every week,” said the new Clear Channel executive, who knows a lot about music not just from his days as a radio programmer, but also from being “The Father of MTV.” “So as you’re getting tired of a certain song, it begins to disappear. As you discover a new song, miraculously it appears and starts being played more and more. And every week, every month, every year the station is constantly changing in reaction to changing consumer tastes.”
And then here are the human beings. Pittman noted that when MTV started he and the other executives had to decide whether to have people as hosts, or just play the music videos. The decision was made that people were needed, and that proved to be a correct choice because viewers bonded with the VJs (video jocks) who became the faces of MTV. Likewise, radio hosts are companions as people drive along and stations have strong local brands which are identifiable to their audiences.
Pittman doesn’t totally discount “jukebox radio,” noting that Clear Channel has done a deal with Thumbplay to add the music service to its iheartradio Internet-based streaming operation.
But services like Pandora, he said, are not radio. “What you’re really looking at is a playlist.” Pittman asked attendees if they’d all made their own playlists when they first got an iPod. “Remember how great it was for a while, but over time you got sick of listening to your own playlist. It burns out. That’s exactly what happens here, because what you’re going to find with Pandora, or even with our service as well, it’s a shortcut to create a playlist. You’re putting in a song. It creates a playlist. It’s a benefit – I’m not knocking it – it’s good, but it ain’t radio. You create a playlist and then the songs are put on constant shuffle, to use the iPod analogy, but it constantly shuffles songs that are the same group of songs. And if your tastes change or you get tired of that new Lady Gaga song, it’s still there. And if a new song appears, guess what, it doesn’t show up there. So what you do is you go create another playlist – and another one,” he said.
Pittman noted two studies which found the same thing – the longer someone listens to Pandora, the less they like it. Radio, unlike jukebox services, introduces new songs, has personalities to bond with and delivers local content. Personalities do make a difference, he said, noting that Clear Channel wouldn’t have paid Ryan Seacrest $60 million if it didn’t need to.
RBR-TVBR observation: We’ve long considered Bob Pittman to be one of the smartest guys in media, even if he is now an exec of the company which owns one of our competitors, Inside Radio.
He saw the potential of music videos on cable when most people didn’t, the media value of the Internet when it was still new – and now he’s back to touting the value of radio when the supposed cutting edge view is that it is long past its prime.
If you somehow missed our extensive RBR-TVBR interview with Pittman before he took his new job, it is worth your time to listen.
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Pandora’s Wall Street debut was a bust
You may have read uninformed commentary elsewhere that Pandora Media’s IPO may not be busted because the stock price could still rally back to the IPO price. Sorry folks, it doesn’t work that way.
There’s no official definition of a busted or broken IPO, since the big investment banks don’t want to think about their bad deals. The rule of thumb, though, is that an IPO is broken if it closes below the IPO price anytime within a month of the offering. Pandora Media has now done so twice in three days of trading.
A late rally on Friday made Pandora’s performance positive for the day. It closed at $13.40 - up 14 cents for the day but still well below the $16.00 IPO price. The stock has now traded in a range of $12.16-26.00 in three days of trading, with the only close above the IPO price coming on Wednesday (6/15) at $17.42.
Pandora now has official coverage by a second Wall Street analyst. Richard Greenfield of BTIG Research, who had been a critic of the IPO, has initiated the stock with a “sell” rating and a target price of $5.50. That’s actually up from his pre-IPO estimate of $4-5 as the real value of the stock.
The analyst sees Pandora turning profitable in 2014 after a few more years of red ink. He points out the obvious problems with the business model: “While Pandora is creating a large active user base, its reach/frequency continues to pale in comparison to terrestrial radio, as does its profitability. Pandora’s fundamental problem is that active users and listening hours are growing rapidly, but those listener hours have fixed (and annually escalating) royalty costs per streaming hour (fees to music labels).”
Greenfield joins John Tinker of Maxim Group in covering the stock. They have somewhat differing views of the company’s worth. Tinker rates Pandora a “buy” with a target price of $23.
That’s a huge spread, of course, from $5.50 to $23.00. For now, the stock price is hovering around $13 – kind of in the middle. The coming week will tell whether Pandora can hold onto a double digit stock price or start sliding toward penny stock territory (anything below $5).
RBR-TVBR observation: At this point it may be optimistic to project that Pandora will be able to post a net profit in 2014. You first have to post an operating profit before you can think about getting to a net profit.
RBR-TVBR seems to be the only one to notice that Pandora’s operating (negative) cash flow moved the wrong way – and big time – in fiscal Q1 after improving last year.
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