Pandora aims to regain listeners with enjoyable ad experience
Digital music streaming service Pandora has seen active listeners in Q2 drop 2.7% year on year to 76 million, according to the company’s latest earnings call. Pandora plans to bolster marketing efforts for its ad-supported tier and encourage users to upgrade to the subscription level from there; 64% of Pandora’s Premium subscribers were upsold using this method. Pandora hopes to improve users’ ad experiences through personalised messaging and sponsored listening, an ad format that exchanges an impression for one hour of uninterrupted music. Ad revenue for the company increased by 5% year on year to $287m up from a 1% rise in Q1.

Pandora’s active listeners in Q2 declined 2.7% YoY to 76 million, the company reported on its Monday earnings call. That’s down from 78 million active listeners during the same period last year.

To bolster its user base, Pandora will refocus its marketing efforts on getting users to sign up for its ad-supported tier and upgrading to subscriptions from there, said interim CEO Naveen Chopra. Chopra, formerly Pandora’s CFO, stepped into the position when Pandora co-founder Tim Westergren resigned in June. Sixty-four percent of Premium subscribers have been upsold from the ad-supported tier.

“We’re broadening our audience and increasing direct-response spend to drive new and lost users back to the ecosystem,” Chopra said. “But there’s more we can do to combat loss of users.”

One way Pandora hopes to bring back users is by creating more enjoyable ad experiences. The platform will invest in personalized messaging and more innovative ad formats like sponsored listening, which trade an impression for an hour of unlimited music.

Ad revenue was up 5% year over year to $287 million, a modest yet necessary bump from Q1’s growth of just 1%. Total revenue grew 10% to $377 million.

Pandora was able to grow ad revenue by shifting sales from low- to high-value channels while increasing ad load from roughly three to five spots an hour, Chopra said. RPMs (the streaming equivalent of a CPM) were up 24% year over year to $66, while video and display ad sales grew by 8% and 22%, respectively.

“That occurred during a quarter where we were using more inventory than normal to promote our subscription product,” Chopra said.

That small burst of momentum in Pandora’s ad biz will set it up to launch programmatic video in Q3 and programmatic audio in Q4, Chopra said.

“We’re getting much more of our inventory into programmatic channels over the next few quarters,” he said. “That’s a critical milestone for us. It opens us up to a much better pricing environment, new sources of demand and plays to our strengths in data, measurability and targeting.”

But Pandora must be careful not to increase ad load too heavily or it risks losing even more users.

“We are able to monetize without necessarily just creating more interruption for the user,” Chopra said, referring to video products like sponsored listening.

Even as active users waned, Pandora claimed those sticking with the platform are engaged.

Listeners used Pandora 26 days per quarter on average in Q2, up 10% year over year. That number will continue to rise as listeners are able to access Pandora on more devices, like smart cars and home assistants, Chopra said. Pandora reaches 9.4 million users on connected devices, with voice-activated devices accounting for 1.6 million of those listeners, up 282% year over year.

“We’ve reached an all-time high of hours of engagement per user,” Chopra said. “We’re well poised to capitalize on voice activation and connected autos.”

To boost user numbers, Pandora will introduce new audio content beyond streaming music, like podcasts, and be more aggressive in its own consumer marketing.

Q2 has been busy for Pandora. Earlier on Monday, the company announced it would pull its operations out of New Zealand and Australia, its only international markets.

“I don’t want people to conclude that the decision is a proxy for how we look at international more broadly,” Chopra said.