Updated 9:21 pm ET, Wednesday, September 21
Pandora Internet Radio has jumped on the HTML5 bandwagon in a big way, unveiling a slick redesigned website today for all users and unlimited listening, removing its 40 hours per month restriction for free users.
Pandora touts the site’s “faster load time” and new “social features and sharing tools,” including a new Pandora profile page for every user and the ability to “Follow” users and share links to stations and specific tracks over Facebook, Twitter and within Pandora itself.
But don’t let all the bells and whistles fool you into thinking it’s not ultimately a business ploy: Pandora, which is still unprofitable as of its last quarterly earnings statement, earns most of its revenue from display advertising. In the case of Q2, that amounted to some $58.3 million out of $67 million, the rest of it earned from Pandora’s less well-known ad-free paid subscription service.
Meanwhile, the company reported fewer net losses over the same period, $1.8 million, but more than double the content acquisition costs from the previous quarter, up to $33.7 million from $14.7 million.
That’s because Pandora entered into a devil’s bargain with its content providers, the record labels, who made the web radio company sign a 5-year-contract that sees Pandora paying fixed royalty rates for every song streamed, meaning that the more Pandora grows its listener base and increases its listening hours, as an ambitious company would want to do, the more it has to pay the labels.
Pandora’s contract is up in 2015, so it’ll begin renegotiating with labels in 2014, but even then the company will be in a precarious position as the more popular it is and the higher revenues it reports, the more labels will likely seek to exploit it. Still, Pandora hopes to argue that overall listenership is shifting away from terrestrial radio, so the labels should give Pandora fairer deal in order to continue turning customers onto new music that they will ideally purchase from the labels.
But back to advertising: Clearly, the new HTML5 website will allow for a more immersive and interactive display advertising experience, which Pandora hopes will allow it to charge more for ads.
When we checked out the website just a few minutes prior to this posting, an ad for Vistaprint took over not only the “right rail” vertical banner to the side of our playlist, but also occupied the entire backdrop of the website with its green-themed color.
Pandora also embellished upon the new advertising possibilities in a separate PR release directed at prospective ad buyers, boasting “ads are seamlessly integrated across the entire site.” The release also claims new HTML5 website offers “smooth platform parity between web and mobile, making it easier to execute cross-platform audio and visual ad campaigns.”
The mobile aspect is critically important to Pandora’s strategy, as the company reported last quarter that mobile advertising amounted to just over half of its overall ad revenue.
That’s why it’s a little curious Pandora isn’t allowing iPhone users to navigate to the HTML5 website on Safari. We just tested it out at the time of this posting and got redirected to Pandora’s iPhone app.
While Pandora is justifiably proud that its iPhone app is such a success, having neared 10 million downloads and occupied the spot as the second-most downloaded app of all-time to date. But one major advantage of HTML5, is the fact that unlike Adobe Flash, it will actually load on iOS devices, allowing businesses to skirt the Apple app store entirely and its strict enforcement of family friendly content and Apple’s 30/70 revenue split with apps companies.
That said, Pandora remains a free app and doesn’t promote in-app purchasing, so maybe there’s a method to the madness of keeping its popular iPhone app where it is.
Still, as analysts have pointed out, Pandora’s overall success will ultimately be determined by how it runs its ad business, and while the HTML5 site is certainly a bold move, it might not be the right one. As analyst Richard Greenfield of market research firm BTIG put it in August: “On mobile, you are even less likely to be interacting with the Pandora screen, especially since the advent of multi-tasking on mobile devices such as the iPhone last year. If you are jogging or have plugged your iPhone into your car, there is no way you are going to be able/interested in clicking on an ad, let alone even know that the display ad is on the screen…The lack of screen engagement will force Pandora to sell interactive mobile advertising at ultra-low rates.”
Late update: A Pandora spokesperson has responded to Idea Lab via email regarding the issue of why it is still redirecting customers to its iPhone App. Though it declines to specify the exact rationale, the company says “HTML 5 is only for the web version of Pandora for now,” also pointing out that advertisers will enjoy a unified experience between desktop and mobile for their campaigns thanks to the new site.
” Ad campaigns today often run across both our web and mobile platforms. We’ve made it easier and more consistent for the advertiser to run their campaigns across our services (e.g. same graphics requirement for audio ads on web and mobile). We have also made operational system changes to make this smoother and more efficient.”
In addition, Pandora addresses a question first raised by Gizmodo, of why the new HTML5 website supports Flash, writing: “We do not require Flash for the advertisements. There are aspects of the website that still require Flash. For now, this gives us the highest quality and most reliable listening experience across the broadest number of browsers.”
