Pandora Reflection

To the members of the board

I just wanted to follow-up with you after Tuesday night’s consulting presentation to provide my feedback and recommendation.  While our company has been operating for several years and we are still in the red, I felt the consultants provided us with several good options for the future.  First and foremost I would say that selling the company is not an option.  While the consultants’ estimates would provide a net benefit of roughly $35MM, this is not why we started the business and I don’t feel like now is the time to exit. 

Now, moving away from that approach, the consultants’ provided three very viable options for the business.  First, a mobile app that would cost a mere $0.99 for consumers to download – costs for this project would estimate $350k per year for developers and search engine marketing expenses.  However, based on the number of smartphone users and existing Pandora users, the net benefit to the company would be $2.0MM in Year 1 and nearly $2.5MM in year 2.

Another option for our company would be a tiered pricing structure which would have a net benefit of $1.5MM in Year 1 and $3.3MM in Year 2.  The issue that I am wrestling with in this option is the fact that we may lose some of our loyal customers.  While the fee to listen for more than 40 hours is minimal, some customers may not want to pay and would just stop using Pandora.

The final recommendation of the consultants was the use of Audio ads.  This option provided the highest benefit to the company at $4.2MM in Year 1 and $6.3MM in Year 2.  While current Pandora customers do actually like the advertising we provide which is unobtrusive, I feel that audio ads would be a good addition.  Like the consultants suggested, these could be short 15 second clips that are played after every 15 songs.  These ads could be done in such a way that customers may not even notice that they are being played.

My suggestion would be to implement a mobile Pandora app and the use of Audio advertising.  After we go forward with these options, we could further look at the tiered pricing structure.

Thank you for your time and please feel free to reach out to me if you have any further questions and/or comments.

Deidra