[Blogger's note: This was a highly inspirational session. Tim is passionate about his work and his love of music. I hope this transcript reflects this properly. Read from the bottom up.]
1:28pm – Q: How did you stay afloat for 5 years? A: We raised our first batch of money in March 2000, just before the bust. That lasted a year. Then about 50 people worked 2.5 years without any pay. I had maxed out 11 credit cards and had amassed $250,000 in personal debt, some to family and friends.
We finally got funding in 2004, and we finally were able to pay everyone back. People supported us because we were so tough and we stuck with it. We always thought it was a cool idea.
Since 2004, we’ve raised a lot more money. A few years ago, we did a big financing. As a run-up to that, we were pitched by all the big Wall Street banks to be an intermediary to market us to a bunch of investors. They are specialists at wining and dining executives. I was in a penthouse suite dinner in Las Vegas, eating an $80 Kobe beef burger with a truffle and drinking a glass of wine, and I thought it might turn into a dream where I’d be standing holding a Big Mac. But it was real.
1:24pm – Q: Talk more about your guiding principles. A: We have every new employee go through Pandora University – advertising, product development, sales. The capstone of that is a session of principles led by me and our CEO. What do we stand for? How do we treat each other? How do we hire people? If you’re a new employee at Pandora, you understand these principles.
1) We respect musicians. We celebrate what they do. We will not pursue any business that violates copyright or the ability for artists to sustain their business. We do not rip music.
2) We ask our employees for people to make decisions with as few people as possible. Not micro-managing. A lot of flexibility. Reed Hastings at Netflix posted his employees policy, which includes “no vacation”.
3) You can work anywhere, anytime you want as long as it works for you and your coworkers.
1:20pm – Q: Any new features for Pandora? A: We don’t announce features in advance. We’re focusing on the car, so we can be ubiquitous there. We’re working more with mobile devices, but it’s hard to monetize mobile-Pandora now. Another big frustration for us is global – Pandora is only legal in the US (licensing/royalties). Used to be, you could access Pandora internationally by typing in a zip code (most popular one was 90210!). Labels threatened to sue us, so we had to use IP blocking.
This really bummed us, because music is such an international phenomenon. We lost a bunch of customers. Then we had to cut off service to our soldiers because the military said we were taking too much bandwidth. We will be back overseas – it’s insane we can’t be global now.
1:18pm – Q: Do you watch your competition? Tim: You always have to keep your eyes open. The controversy on royalties 2 years ago really killed “web radio”. Before then, the largest players here were Yahoo and AOL, but they’ve stepped back. Right now, we’re about 2% of overall radio, but we’re now about 60% of Internet radio. We just try to be so much better at this, that we can feel comfortable even when future entrants come into the space.
1:16pm – Q: In the early stages of your company, with all you had to develop, what is your view on Net Neutrality? Has your perspective changed? Do you get pressure from government or big labels? Do you think there should be legislation or market-driven? Tim: We’re huge believers in Net Neutrality. We don’t lose any sleep on it, because it would be such a huge revolution. (You can’t roll the Internet back.) We do get pressure (and offers of big money) from labels to play their songs more – but we’ll never do that.
1:14pm – Q: Can you use Pandora and the MGP to write music? Tim: there’s a big step between 400 genes and creatively writing music.
1:12pm – Q: How is Pandora monetizing user data? Tim: We have not done that. It’s not a priority. We use it to make your playlist better, and to target advertising (by age/gender). The area where that’s going to be powerful eventually, is connecting bands to their fans. It’s not that hard to imagine that if you “thumb up” a band, Pandora could let you know that band (or something similar) is playing in your city. (Tickets, anyone?)
1:06pm – Tim: We pay our licensing fees under the Digital Millennium Copyright Act. In order for us to qualify for this particular licensing, we have to do certain things. Allow for only a certain number of skips, for instance. These performance fees are argued and reset every 5 years. The beauty of this is we don’t have to deal directly with labels, negotiated via proxy in Washington. Simple, centralized.
The downside is sometimes the copyright royalty boards go crazy with the fees. 2 years ago, we almost went out of business because our license fees tripled. We appealed to the panel, but they didn’t hear it. We appealed through the labels, but they didn’t want to make a chance. A court case would have taken too long. So we appealed via our listeners, “if this isn’t fixed, we will go out of business”. We told them to call or fax their Congressman.
We had 4-5 million listeners at that time. Washington DC got 400,000 faxes in 3 days. Broke their faxing infrastructure. We had to print them out and truck them to Capitol Hill. More faxes than the whole Iraq War.
We walked to the Hill – thankfully many of the Congressional staffers were Pandora fans. They listened to us. We got the price reduced. It’s still unfair, but better than before.
1:04pm - Tim: Licensing fees are huge for us. We pay 2 fees. Publishing fee is about 4% of revenue – consistent across all forms of radio. Performance fee is a much bigger deal. Last year, we paid $30 million on revenue of $50 million dollars on performance fees – 60%. Cable pays less. AM/FM pays nothing in performance fees. Per US copyright laws.
1:02pm – Tim: we can target ads for specific demographics. Men in Cincinnati listening to country music. Once you know your user, you can be so much more relevant to them.
Tim Westergren, founder of Pandora
1:01pm – Tim: For mobile, we use audio, which is a perfect advertising stream. Our standards – 15 seconds per ad max, and up to 3 ads per hour.
12:58pm – Tim: #5 advertising real estate. We’ve found a good solution. The nice thing about the tuner on Pandora.com is that it’s small, so we can use a lot of real estate for advertising. Page design is key. In order for advertising to be effective, it needs to have a lot of space. We have a nice marriage of functionality and advertising.
12:55pm – Tim: More than 200 devices now that play Pandora – growing leaps and bounds. Alarm clocks, TVs. They have a deal with Ford coming out later this year. You can “voice command” it, so you can keep your hands on the wheel. It’s “Buck Rogers”-like.
12:55pm – Tim: A key learning moment for me when I was driving in my wife’s car, listening to Pandora. Total mind-shift that this experience is replacing the car radio. He loved being able to hear all his songs, and skipping the songs he didn’t like.
12:55pm – Tim: My “Ben Folds” station is my “trusty” station.
12:52pm – Tim: Up until the iPhone came along, people thought of Pandora as “computer radio”. Now it’s ubiquitous, plugged into car dashboards, or taken to the gym. Half of the listening on Pandora on mobile devices is done over wi-fi – it’s become much more portable.
12:52pm – Tim: #4 Ubiquity. The ability to talk to a customer throughout the day. Not just AM or PM. Valuable to advertiser to say “we can talk to customers throughout the day”. Thanks largely to the iPhone. We launched our iPhone app in summer of 2007, and it completely changed our world. We immediately went from 20,000 new accounts per day to 40,000 new accounts per day. Now at 100,000 new accounts per day, across all devices.
12:50pm – Tim: Engagement. If you don’t have an engaging website, you won’t have high scores on the metrics that matter. On Pandora, we have had 7 billion thumbs so far. When people can interact, it changes the display, more engagement, more advertising.
12:47pm – Tim: People relish the chance to have an in-person conversation. We also have a team at Pandora who answer every e-mail to us, 30,000 per month. Some of those are negative, even with death threats. But people have also sent us poetry, and fudge! Each inquiry is an opportunity to talk with somebody. I believe Pandora has established a high degree of trust. That has helped us, in tough times, go directly to our customers, when we had to tell them we were capping listening at 40 hours per month.
12:47pm – Tim: I’ve been travelling the country for the past couple of years, talking about Pandora. Town Hall meetings, spurred by e-mails to their subscriber base. And people will come. The first one was in New York, and 2 people came to it. Great conversation though. I came back to New York recently and we had 1,000 people, with a line around the block.
12:45pm – Tim: We never apologize. Pandora’s a free service, supported by ads. The vast majority of the listeners will accept that. A small few will even subscribe.
12:45pm – Tim: Moving on to listener permission. “We are unapologetic about the bargain that allows us to exist.” – Pandora principle.
12:44pm – Tim: This is “unicasting”, and it’s the reason Internet radio will one day replace traditional broadcast/satellite music radio.
12:44pm – Tim: Motto at Pandora “It’s personal” Daily uniques 5.5 million, and they’re all listening to something different. We know your age, gender and zip code.
12:41pm – Tim: Pandora doesn’t factor in popularity. The engine doesn’t know what’s popular, so it’s an even playing field for musicians.
12:41pm – Q: How do you deal with changing tastes? Tim: We’re working to develop “aging” data, where older choices will mean less than current choices. Not finished yet – still working on it.
12:40pm – You may have all launched Beatles stations, but after listening to Pandora, each of your Beatles stations will be different, because of your individual preferences along the way.
12:34pm – When an analyst is finished with a song, we’ve got the musical DNA of that song. When you go to Pandora and type in a song, Pandora builds a playlist based on its knowledge of other content in your preferences. As you thumb up/down your favorites, the system gets smarter about you, for your benefit.
12:34pm – Tim: Personalization on Pandora starts with the Music Genome Project. We’ve got people listening to music, analyzing up to 400 attributes, song by song. One by one, they score a musical taxonomy. “Completely f—ing crazy!”
12:34pm – Tim: 230 employees across the country, about half in advertising support. We are building an advertising business.
12:34pm – Tim: 5 core ingredients that helped us get where we are today. 1) personalized, 2) listener permission, 3) high engagement, 4) ubiquity, 5) effective real estate
12:34pm – Tim: we’ve had a very healthy trajectoy in advertising.
12:32pm Pandora founded in 2000. Product first came out in 2005. We launched as a pay business, you could listen for 10 hours then pay. People would listen for 10 hours, then erase their cookies and listen another 10 hours. And we were still paying these licensing fees.
12:32pm Tim Westergren opens by asking the crowd if anyone uses Pandora. Huge response, and he’s thrilled.
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