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Pandora's Tim Westergren goes after radio where it matters most: The car

October 21, 2010 |  6:00 am

Tim Westergren Pandora

Tim Westergren hasn't always been the digital music prophet. When he founded Pandora Media in 2000, it was more of a curious academic experiment called the Music Genome Project to analyze the attributes of all types of music, from early Renaissance classical to trip hop and funk.

That was followed in 2005 by Pandora's Internet radio, which serves up music deemed by the Music Genome to be similar to favorite songs or bands of individual listeners.

Though wildly popular, the company limped along financially until 2008, when Westergren announced that it was on the brink of collapse, thanks to a dramatic, retroactive increase in what Internet radio stations such as Pandora were ordered by federal courts to pay in performance royalties.

The announcement came as a shock to its 6 million listeners, who bombarded their elected officials with demands for reducing the fees. The campaign, called SaveNetRadio, worked. The fees were ratcheted down last year, sparing Pandora from what seemed like certain extinction.

The Oakland company still forks over 60% of its revenue in royalties, but now it can focus on growing, rather than just staying alive. Pandora today has more than 40 million listeners on mobile devices.

What's next? Westergren, the company's boyish and lanky chief executive who favors striped T-shirts that make him look much more youthful than his 44 years, answers that in a recent interview with The Times.

You've conquered cellphones. Now what?

Westergren: Simply put, half of radio listening happens in the car. People spend 20 hours a week listening to music; 17 hours of that is from radio. About half of that radio listening, or 8.5 hours, occurs while they're in a car. So that's the holy grail.

We're actively developing products with car manufacturers and after-market stereo companies such as Pioneer and others. We're already working with Ford, Mercedes and other companies that we can't talk about now. Our goal is to be in every new car that rolls off the manufacturing line.

Half of the 20 million people who have Pandora on their iPhones use it ...

... in the car. But we can't promote that kind of usage because of the safety concerns involved when you're driving and trying to control your phone at the same time. So the future is in being able to control Pandora right from your steering wheel.

What about Internet-connected TVs, game consoles and other devices?

Pandora's on 200 unique devices now, from Blu-ray players to flat-screen TVs. The average user spends five hours a day listening from those devices. It's a growing category for us.

Some folks in the music business think all-you-can-eat subscription services such as eMusic and Rhapsody have no future. Others say it's got to be ad supported. What do you think?

We do have a subscription service. It's $3 a month, and only a tiny number of people subscribe. It gives you a higher-quality stream, more song skips and doesn't have any ads. For years, the No. 1 reason people gave us for subscribing was that they wanted to donate money to Pandora. Only recently did the No. 1 reason change to having no ads. Donating to Pandora is now No. 2.

We have three 15-second commercials every hour. They're essentially every 20 minutes. That's 45 seconds of advertising an hour. On broadcast radio, it's more like 12 to 14 minutes of ads -- 80% of them are local ads. When ad buyers think of the Internet, they think it has to be national. But that's not necessarily true. Every ad we do can be narrowed by age, gender, ZIP Code and musical taste.

What's the future business model for digital music? And is Web radio hurting or helping artists and labels?

What's crushing the music labels is the ability for people to buy singles. That destroyed the retail business, which depended on album sales. Web radio isn't hurting the business. It's helping.

Think about it this way. For years, broadcast radio collected billions of dollars every year in advertising. Almost none of it goes to the labels, and a small amount of it goes to composers. It was the biggest part of the music business, and all the money was quarantined from the rest of the industry.

Every hour that goes from broadcast radio to Internet radio means more money for artists. That's because Internet radio, unlike broadcast, pays performance royalties [to recording artists as well as songwriters. Over the air radio is not required to pay royalties to bands that recorded the music.] Last year, we made $50 million in revenue, and $30 million of that went to [recording] artists.

Secondly, Internet radio doesn't cause people to buy less music. Music labels are afraid Internet music services will cannibalize music sales. That's how they see on-demand services like Spotify. We're promotional, not substitutional -- 43% of the people who get Pandora end up buying more music than they did before they signed up. Only 1% say they buy less music. Artists and labels can make billions of dollars if people migrate from traditional broadcast radio, where they're getting no performance royalties, to Internet radio, a space where labels and artists can collect money.

You're a musician. You've been in bands, playing jazz and rock on the keyboard. You've even done  some film scoring for a couple of independent movies. With the Internet opening up doors for musicians to find an audience, how much easier is it to make a living from being a musician?

It's just as hard as it used to be. When you ask this question, you're asking how many bands can write good music, have staying power and can tour on a regular basis. My current theory is that the number is fewer than 5,000 bands. It's a pretty small number, and that's OK. It's true of any highly skilled profession. And this is a really tough profession, because it's not just raw talent that determines success.

-- Alex Pham and Jon Healey

Photo: Tim Westergren, chief executive and founder of Pandora Media. Credit: Alex Pham / Los Angeles Times.

 

 

 

 

 

 

 

 

 

 

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