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Pandora Creates Middle Class for Musicians

10/26/2012

Thursday I attended a town hall meeting – and it wasn’t a political event.

Instead it was hosted by Tim Westergren, co-founder of Pandora – the streaming music site.

The purpose of the meet-up, according to Westergren, was for a virtual business to interact in person with the people who make Pandora possible…listeners and musicians.

Westergren went through some of the challenges they had starting the business up including having about 50 employees work nearly two years without pay prior to 2005. Pandora’s management called it “salary deferral” only to learn later that salary deferral is illegal in California where Pandora began. Says Westergren, “We were too poor to have an attorney, so we didn’t know.” Westergren we clearly proud to say every employee was paid those deferred dollars in a surprise meeting once Pandora received VC funding.

As you might expect Westergren has opinions on the music industry. In sharing those opinions he revealed interesting facts about Pandora. Pandora’s market share of radio is 6.5%. Pandora’s library is vast but the company’s mathematical algorithm insures that every song is played at least once a month.

When Westergren stated that Pandora’s mission is to create opportunity for musicians it was clear he meant it. He is passionate about using Pandora to offer musicians of all types and levels the platform to be heard by a large, even international audience. He believes this will create revenue for musicians to live by being musicians and not just musicians on the side.

Westergren described in detail how the current music industry model – recording, distribution, radio and lastly artist funnels massive talent into a tiny space for public consumption. In Pandora’s world, where music is presented to listeners based upon preferences, musicians are democratized creating opportunity for all.

Pandora does not endorse, promote or feature any artists. Instead Pandora makes recommendations based upon the artist you select to start a playlist. Listeners give thumbs up to songs that follow they like and thumbs down to songs they don’t like. According to Westergren at one town hall a listener suggested adding a third action for songs you hate – the finger. That got a laugh from the crowd.

Pandora has a love/hate relationship with Apple. The iPhone has basically saved Pandora from extinction. Nearly 70% of Pandora’s music library is accessed via smartphone. Pandora was selected to be one of the 5 apps that comprised the app store at the launch of the first iPhone. 5 apps….that’s amazing.

Ironically yesterday Apple announced its own radio service will be launched in early 2013. The news crushed Pandora’s stock, triggering two circuit breakers to prevent a free-fall of stock price. By day’s end, Pandora rallied some but finished down 12% to $8.20. Of course Westergren can’t comment on rumored competitive threats – but it has to make him nervous.

If Westergren and Pandora can make it possible for musicians to create a middle-class lifestyle maybe Pandora is in its own way a stimulus package.

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