Pandora is a music streaming service that people pay to use. It is owned by Sirius XM, a broadcasting company based in Oakland, California, United States. Pandora uses the "Music Genome Project," a system that classifies songs based on musical traits like genres and instruments. The service began as an internet radio platform that created personalized music channels based on these traits and songs users liked. It offers a free version with advertisements and a paid subscription version with more features. In 2017, Pandora launched Pandora Premium, a version that allows users to choose what they want to listen to anytime, similar to other music services.

The company was created in 2000 under the name Savage Beast Technologies. At first, it provided the Music Genome Project to businesses as a recommendation tool. In 2005, the company changed its focus to consumers by launching Pandora as an internet radio service. Pandora is a freemium service, meaning some features are free with ads or limits, while others, like better streaming quality, music downloads, and offline listening, require payment.

In February 2019, Sirius XM bought Pandora for $3.5 billion in stock. In 2021, Pandora had about 55.9 million active monthly users and 6.4 million subscribers. By 2022, the service had fewer than 50 million active users. As of 2023, Pandora had 46 million users.

History

In 2000, Will Glaser, Jon Kraft, and Tim Westergren started a company called Savage Beast Technologies. Will Glaser had thought of a way to classify music using different traits and features, which he later called the "Music Genome Project." The company was first planned as an online shopping service that would use Glaser's algorithm to recommend products, but this idea was abandoned after the Dot-com bubble reached its peak in March 2000. Later, the company tried to license its technology to other businesses, such as AOL Music and Best Buy, which tested it in store kiosks.

The company had financial problems and used up its initial $2 million in funding by 2001. Glaser, Kraft, and Westergren asked Savage Beast's 50 employees to work for two years without pay, which led to a lawsuit in 2003 because unpaid wages were against California law. After settling the case, only a few employees were let go. In 2004, Walden Venture Capital provided $8 million in funding after seeing success with Best Buy's trial. Joe Kennedy, who previously worked at Saturn, became the new CEO. When agreements with Best Buy and Borders ended, the company focused on creating Pandora, an internet radio service that used the Music Genome Project to personalize music for users.

Pandora officially started in August 2005 as a subscription-based service but added a free, ad-supported version in November 2005 after users abused a 10-hour free trial by creating new email addresses. Ads could be shown based on the current song playing.

In 2011, Pandora went public on the New York Stock Exchange. At that time, Pandora had 800,000 tracks from 80,000 artists and 80 million users. By mid-2018, Pandora had 71.4 million active users.

On March 7, 2013, Pandora's chairman and CEO, Joseph J. Kennedy, announced he would leave the company after nine years.

In April 2013, Pandora reported its radio streaming service had 200 million users, including 70 million monthly active users. By December 2013, Pandora accounted for 70% of all internet radio listening in the United States.

On September 1, 2013, Pandora removed a 40-hour-per-month limit for free mobile listening. By October 2014, less than 5% of active listeners were paying subscribers.

By November 2014, Pandora had doubled its music library, reaching over 1.5 million songs.

On September 15, 2016, Pandora launched "Pandora Plus," a $4.99 subscription service to compete with other streaming platforms.

In early 2017, Pandora reported that 56 million of its 81 million active users listened to the Today's Country station, and country music accounted for over 1.7 billion listening hours in 2016.

On July 31, 2017, Pandora stopped offering services in Australia and New Zealand to focus only on the U.S. market.

In September 2017, Roger Lynch became CEO and said he wanted to expand Pandora's focus to include podcasts with similar discovery features and new ways to earn money. In January 2019, Lynch left after Sirius XM agreed to buy Pandora. He was replaced by Sirius XM's CEO, Jim Meyer.

On February 26, 2019, Pandora launched "Pandora Stories," a tool that allows artists to create playlists with voice tracks and narratives.

In October 2019, Pandora's parent company, Sirius XM, signed a deal with Marvel to launch superhero-themed podcasts in 2020.

On June 11, 2013, Pandora announced it would buy FM radio station KXMZ in Rapid City, South Dakota. On October 7, 2015, Pandora bought Ticketfly for $450 million but sold it to Eventbrite for $200 million in 2017.

In November 2015, Pandora bought Rdio, a bankrupt streaming service, for $75 million and kept 100 of its employees.

In March 2018, Pandora acquired AdsWizz, a digital ad technology company, for $145 million.

In February 2019, Sirius XM bought Pandora for $3.5 billion in stock. In June 2020, Sirius XM acquired Simplecast, a podcast provider, and merged it with AdsWizz under Pandora.

In July 2020, Sirius XM bought Stitcher for $325 million and added its exclusive podcasts to Pandora. At its peak, Stitcher had about 14.5 million weekly users.

In 2022, Sirius XM bought Cloud Cover Media, a company that provides music for businesses, and merged it with Pandora to create Pandora Cloudcover.

Features

Listeners can choose to listen to radio stations that play music in specific styles, stations created by other users, or make their own stations based on the types of music they enjoy. Users can click "thumbs up" or "thumbs down" to show if they like a song, which helps the system decide if similar songs should be played. If a user clicks "thumbs down" twice for the same artist, that artist will no longer appear in the station. One "thumbs down" skips a song immediately, but the number of skips allowed is limited unless the user has a paid subscription or watches a video ad. More than 450 musical features are used to pick the next song. These 450 features are grouped into larger categories called focus traits, with 2,000 total categories. Examples of these features include rhythm patterns, musical keys, and vocal harmonies.

Pandora offers a free version with ads and a paid version called "Pandora Plus" (renamed from "Pandora One" in September 2015), which includes offline playback, more skips, and replays. In March 2017, a third option called "Pandora Premium" was added. This version lets users listen to and create playlists of individual songs on demand, similar to services like Apple Music and Spotify. The system uses a recommendation engine to suggest similar songs and combines computer learning with human curation to filter out low-quality content, such as "knock-off covers" and karaoke tracks.

In October 2019, Pandora began showing full song credits, including details about who contributed to each song. At first, free users could listen to 40 hours of music each month, but this limit was removed in September 2011. The 40-hour limit was briefly added again in March 2013 for mobile devices and then removed in September 2013. In September 2016, a "rewind" feature was added, allowing users to replay a song. The updated service also let users skip more songs per hour if they watched an ad, increasing the number of skips from six per hour.

Device support

Pandora apps can be used on Android and iOS devices. They are also available for Apple Watch and Wear OS smartwatches. There was also an app for the Pebble smartwatch, but that platform is no longer available. Pandora also works with smart speakers. Voice control features were added to the mobile apps in January 2019.

Business model

In the three months ending October 31, 2011, advertising made up 88% of Pandora’s total income. By December 2013, this percentage had decreased to 80%. Revenue per thousand hours (RPM) is calculated using cost per thousand impressions (CPMs). CPMs depend on network effects, meaning they increase as more users join a website. To allow many people to use its service, Pandora offered its platform without requiring specific devices or internet connections. Pandora also partners with chip makers to include its technology in chips sold to companies like Panasonic, Samsung, and Sony.

Pandora’s costs change based on usage, with about half of its total costs going toward acquiring music content. There are three main expenses for content: first, SoundExchange collects fees for music rights on behalf of labels and artists. These are the largest costs. Second, Pandora pays licensing fees to organizations like BMI, ASCAP, and SESAC to compensate composers, songwriters, and publishers. Third, Pandora pays TiVo Corporation for song and artist information, which is now a fixed monthly payment.

Because costs vary so much, Pandora does not gain much benefit from increased sales. In the next few years, it may even lose money on each additional sale if more users switch to mobile devices. Pandora currently earns about one-ninth as much from mobile listening as from desktop listening. Since licensing costs are the same for all platforms, mobile hours contribute even less to profits than desktop hours. Over time, mobile revenue may improve as Pandora sells ads directly instead of relying on third-party networks.

In January 2011, Pandora met with investment banks to plan a $100 million initial public offering (IPO). The company filed with the SEC for the IPO on February 11, 2011, and began trading on the New York Stock Exchange on June 15, 2011, with a stock price of $16 per share. This gave Pandora a value of nearly $2.6 billion.

In the first quarter of fiscal 2012, Pandora reported $80.8 million in total revenue, a 58% increase from the previous year. Of this, $70.6 million came from advertising, and $10.2 million came from subscriptions. Advertising revenue grew by 62%, and subscription revenue grew by 38% compared to the same period the year before. However, most of Pandora’s users still use the free, ad-supported version of the service.

Royalties

Pandora’s business model faced challenges due to changes in royalty rules for internet radio in the United States. In March 2007, the Copyright Royalty Board required higher fees for each song played online, which terrestrial radio stations did not pay. Pandora was part of an industry group called SaveNetRadio, which opposed these higher fees. In August 2008, Pandora’s CEO, Tim Westergren, told The Washington Post that the company might stop offering its service if the issue was not resolved, as continuing to pay high fees would waste money.

On July 7, 2009, SoundExchange announced new royalty rates for internet radio. Larger webcasters, like Pandora, would pay a minimum of 25% of their total revenue or a set rate per song per listener, whichever was higher. Pandora described the new rates as a compromise that, while not perfect, was reasonable. Because the rates were still higher than those for terrestrial radio, Pandora limited free, ad-supported listening to 40 hours per month. Users could pay $0.99 (in addition to a Pandora One subscription) for unlimited listening for the rest of the month. In September 2011, Pandora extended the 40-hour limit to 320 hours with an update to its app.

On November 22, 2011, Pandora reported its third-quarter earnings. Royalty costs made up 50% of its revenue, slightly better than expected. Revenue from advertising continued to grow, and the number of users and average listening time per user increased. Pandora now accounted for about 4% of total U.S. listening hours. As the company grew, it aimed to negotiate lower royalty costs with music labels.

Pandora’s CEO, Tim Westergren, supported the Internet Radio Fairness Act (IRFA), a law that would reduce royalty payments to performers by 80%.

On November 5, 2012, Pandora sued ASCAP in federal court over royalty fees. The company argued for lower licensing fees for all songs represented by ASCAP’s 435,000 members. On February 27, 2013, Pandora announced a 40-hour-per-month limit on free mobile listening, citing rising royalty costs as the reason.

In March 2014, U.S. District Judge Denise Cote ruled that Pandora’s royalty rate to ASCAP (1.85%) should stay the same. She noted concerns about coordination between Sony, UMPG, and ASCAP, which raised antitrust issues.

In June 2013, Pandora announced plans to acquire a radio station in South Dakota, KXMZ, to gain preferential licensing terms similar to those of iHeartRadio. This move was criticized by David Israelite of the National Music Publishers Association, who said Pandora was “at war with songwriters.” A representative of Public Knowledge praised the move, calling it an example of flawed incentives in the music licensing system. ASCAP opposed the acquisition, arguing it was not in the public interest and that Pandora did not provide enough information about its ownership. The FCC denied the acquisition in 2014 until Pandora proved compliance with foreign ownership rules. The FCC approved the deal in 2015, allowing Pandora to acquire the station. Two years later, Pandora sold the station to Haugo Broadcasting for $300,000.

In July 2013, David Lowery, lead singer of Cracker and Camper Van Beethoven, criticized Pandora’s royalty payment for the song “Low,” which was streamed over one million times. Lowery earned $16.89 for his 40% share of the song, based on his BMI royalty statement.

On September 1, 2013, Pandora removed the 40-hour-per-month limit on free mobile listening, citing progress in mobile advertising.

In 2014, Pandora signed agreements with some music copyright owners to lower royalties in exchange for more frequent streaming of songs. Though not illegal, this practice raised comparisons to payola, which is illegal payment for airplay on terrestrial radio.

Reception

In 2013, Entertainment Weekly reviewed several music services and gave Pandora a grade of "B−". The review stated, "Free streaming radio, $36 per year for ad-free listening. Pandora was created in 2005 and is available on most devices and platforms. However, it does not have an on-demand feature, and its radio stations usually use a limited number of albums." In March 2014, the annual subscription plan was no longer available, and the only way to access Pandora One was through a $3.99 monthly fee. The price increased to $4.99 per month in July 2014. Later, the annual subscription was reintroduced and now costs $54.89 per year.

Advertising

Pandora first started with a service that required people to pay a fee and did not include advertisements. However, many U.S. consumers did not want to pay for the service, so Pandora had to try different ways to make the service free. In December 2005, Pandora sold its first advertisement.

In 2015, Pandora began playing more advertisements per hour in some areas and for certain groups of people. For free users, Pandora normally plays no more than six advertisements per hour.

Pandora became very popular quickly. From 2010 to 2012, the number of registered users grew from 45 million to 125 million. During the same time, the company’s revenue increased from $55 million to $274 million, with most of the money coming from advertising. To attract more people, Pandora offers a version of the service without ads for $36 a year. In 2011, Pandora earned $138 million in revenue but had a net loss of $1.8 million, not counting the cost of a special dividend from its IPO. Overall, Pandora holds 78% of the Internet radio market and 9.3% of the U.S. public radio market. In 2013, total radio ad revenue in the U.S. reached $17.6 billion.

Pandora finds advertisers by explaining that its audience is smaller and more specific than traditional radio. Pandora tells advertisers that its technology can reach people with more accuracy, such as by matching ads to users’ age, gender, ZIP code, or music preferences.

There are several ways to advertise on Pandora. Audio ads last 15 to 30 seconds and play once every 20 minutes. Users only hear these ads if they are interacting with the site, such as by clicking "thumbs up" or "thumbs down" when changing a song or station.

Banner ads appear on the background of the website. These ads are used to encourage users to engage with the site, and they can include clickable links that provide coupons or product information.

Pandora uses data from users’ online activity to show targeted advertisements. This method is called behavioral advertising. Pandora allows users to choose not to see targeted ads by using an opt-out setting on its website. If users opt out, they may still see general (non-targeted) ads from the same companies. Pandora offers either targeted or general ads to users who do not have a subscription. However, Pandora’s ads do not include local content like news, weather, traffic, or talk shows.

Pandora created two separate groups of users: one for Spanish-speaking listeners and another for English-speaking listeners. By dividing users into these groups, Pandora can tailor its advertising to better meet their needs. To create these groups, Pandora combined its user data with information from the U.S. census. This process helped the company identify ZIP codes with large numbers of Hispanic or Spanish-speaking people. Then, Pandora tested how these two sets of data matched to determine which users belonged to each group.