Pandora Chief Executive Brian McAndrews finally stepped into the spotlight now that he's got something to brag about.
A partnership Wednesday with Merlin, a group representing 20,000 independent labels worldwide, represents Pandora's first direct deal with labels ever. It also marks the most significant gain in goodwill between the Internet's No. 1 streaming-music service and the musician community, after years of the company's attempts to save on royalty costs rankled the artists whose music Pandora relies on to exist.
McAndrews, who boasts a resume as an ad man, has spent the last 10 months figuring out how to snatch radio advertising from the airwaves, the primary reason he was tapped to lead Pandora last September. His appointment reflected the importance of advertising at this stage of Pandora's life.
Having grown to more than 75 million active users, the company is in the midst of a campaign to build out its sales force and overhaul its ad infrastructure, all aimed at proving its audience is worth more to advertisers than terrestrial radio's and wresting marketing dollars from its over-the-air rivals. McAndrew's public persona has been limited to discussing progress on advertising and other financials on quarterly earnings calls. Until now.
McAndrew, along with Merlin chief Charles Caldas, spoke with CNET News about the partnership, what at Pandora will change as other elements stay the same, and how he learned just how important musicians are to the company. The following is an edited Q&A.
Q: How would you describe the partnership with Merlin?
McAndrews: We see it as an opportunity to work with artists, to harness the Pandora platform in our first ever direct-label deal. Through the platform we'll be able to help with increasing exposure and connecting them more directly with fans. Merlin will get access to metadata, over 40 billion pieces of thumb feedback. We have not shared that data before with artists and labels to improve their experience on the platform, that's a big break for them and a positive for our listeners as well. Data could help a Merlin artist select cities for a tour because we see where listeners are, or choose a tour partner because we know a lot about how if you like this artist, then you like that artist.
What does Pandora know about its listeners and their behavior with indie label music that makes the service a good place for an independent label group like Merlin to come?
McAndrews: On Pandora, we play more 125,000 artists, while terrestrial radio plays a few thousand a year. It's a great discovery tool for independent artists, and Pandora listeners overindex on independent music listening by a lot.
People do specifically come to Pandora for discovery, and the audience is receptive. People want the Music Genome to be suggesting songs to them. We compare ourselves to terrestrial radio, and independent artists have a more difficult time to get on terrestrial radio. And then compared to on-demand [services like Spotify and Beats Music], people go there for a lean-in experience. Well, you're not going to ask for a song you've never heard before.
Pandora brings new artists and emerging artists, precisely the type that Merlin specializes in, the opportunity to get exposure in new ways.
You expect this deal will significantly increase royalty payments, how so?
Caldas: We wouldn't have done this deal if we didn't believe, given all the things we've negotiated, that it's not going to be financially beneficial to Merlin artists. Nobody is going to be worse off under this deal then they would be under the statutory licensing structure. Financial success will depend on harnessing the power of the platform.
McAndrews: Costs issues on our side were not the major driving factor for this deal, and we don't expect the deal to have a major impact on costs. It's a win-win.
Direct deals make international expansion a lot easier, and Merlin represents labels in 39 countries. Does this hasten Pandora's launch overseas?
McAndrews: That is a long-term goal of ours. The focus of this deal was on the US, but building relationships with folks like Merlin can open up opportunities over time. The direct deals bring on opportunities for conversations that go beyond the statutory framework.
The statutory framework also keeps Pandora from offering products like on-demand listening. Could this deal be the first step to peeling away some of those restrictions?
McAndrews: That's not a part of this deal, and it's not something in consideration. Anything is possible but this was really about using our current model and enhancing it.
After some representatives of recorded music industry, including artists, have demonized Pandora for its attempts to lower rates, how does this deal change that perception?
McAndrews: Obviously we never accepted that characterization to begin with. We have a lot of artists and musicians working at Pandora. In fact, this is a quick anecdote. When I join Pandora last September, I looked for when the holiday party would be and found it was in January or February. I was confused, but I was told it's because we have so many people here who also work as musicians that have gigs over the holidays.
Maybe we haven't always put our best foot forward in terms of communications, but we do see an opportunity to go beyond what we have done. We have exposed a number of artist that would have never gotten exposure to listeners. We think this deal will only accelerate that.