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Tim Westergren: Future of Pandora Radio

Tim Westergren PandoraBio: Tim Westergren founded Pandora Media Inc. In 2000 and serves as its Chief Strategy Officer. Mr. Westergren is an award-winning composer and record producer with 10 years experience in the music industry. He has recorded with independent labels, scored feature films, produced albums, and performed extensively.

Q:Tim, a decade ago you envisioned a new model for digital music listening. How were you able to foresee the future ten years ago?

T: Well, I didn’t actually think we would be a radio in the beginning. That’s an idea that grew sort of organically and came quite a bit later. In the beginning, what I noticed in particular was the intersection of great artists that nobody knows about, and this notion of [personal] taste. The web seemed to be a unique mechanism to take advantage of that technology. So I was trying to solve that particular problem and bring it to consumers. As it turned out, radio was the perfect way to do it.

Q: How did you persist over 9yrs in developing the company model before Pandora became profitable in its 10th year?

T: I’ve always believed the idea was a good one—the basic idea of profiling a user’s tastes, capturing it in the Genome, and creating a technology that helps people discover music. I’ve viewed that as a really valuable insight. So, I think all the people who stuck around all those years never gave up their belief in the power of that idea and the potential of it. I would say the second piece is really the dynamics of a team. If you hire great people who are really dedicated, they develop a certain amount of loyalty to each other and a sense of camaraderie. Then, maybe the third is a little bit of naïveté. You can’t be fully calculating about the decision because it is deeply irrational, and it gets increasingly irrational with each passing month.

Q: We interviewed Russ Solomon, the founder of Tower Records, who felt that the people who stuck around in the music business, the ones who did it for the right reasons, did it because they cared about music.

T: Yes. One of the things I’ve seen over the years is that a company is made up of essentially thousands of little and big decisions. At Pandora, we have always had a really clear idea of who we are, the mission we are on, and what we believe in. I think that has helped us through these many years when there are always temptations to compromise or take a shortcut here or there. I think having a strong purpose helped us survive this and emerge with our company’s personality and mission intact. So I’m very proud of that and of everyone here for that.

Q: Do you feel a sense of empathy for the musicians who you are supporting through your company?

T: Yes, there’s plenty of empathy. I love the fact that people choose music for their career. I think making music is a great contribution, and I love to make that easier for [musicians] to do their whole lives.

Q: Do you find that the Pandora experience broadens the listener’s experience of music?

T: It’s hard for me to say if Pandora is introducing someone to new genres. I do think it’s safe to say that we’re introducing someone to new music. You may start with a band you know well. You may find some neighbor bands you never heard of. They, in turn, lead you down some other paths. Both through user behavior data and the results we are seeing anecdotally from people writing in, I certainly think it’s safe to say that we are opening up people to a lot of discovery. I think it’s one of the biggest and most significant contributions Pandora is making.

Q: What do you feel the recording industory could have done to avoid the situation they now face?

T: I think what happened in the industry, ironically, is that they were catering to people’s tastes. The problem was the economics of broadcast. The way radio has evolved is a very natural path in an advertising-supported medium that can only stream one channel of music at a time. You are almost, by definition, going to find the music that draws the largest audience. I don’t think it’s fair to say that labels caused that; labels are responding to a distribution mechanism, and what is so profound about the internet is that it doesn’t have those constraints. With Pandora, we have hundreds of millions of different radio stations, and something like 90,000 artists and three quarters of a million songs. Around 80 percent of those songs played just last month. So, it’s just a very different mode or modality. Maybe you could say they were overpriced, or the music industry released a single too soon; but, fundamentally, I’m not sure you could point the finger at the pop music strategy. To say that caused it, I think that was in response to the economic demands of the medium. Believe me—radio wouldn’t play that music if people didn’t want to listen to it. They are not trying to get people to like pop; they are trying to respond to what people respond to.

Q: Piracy is a major issue right now in the music industry. How are musicians going to make a living with this issue, where it used to be that you could rely to some extent on record sales?

T: There is no doubt that piracy makes it harder. I think this comes down to the relationship you have with your fans. Can you have a robust enough conversation that they understand that they are your life blood and that if they don’t pay for your music, it’s going to be hard for you to continue? I think that realization will finally dawn on people. If they do a good job taking care of their fans, the fans will reciprocate. They may not do it by buying a CD, but they’ll do it by buying a t-shirt, going to a show, or doing other things.

Q: Do you feel that Pandora Radio has a place in music education, such as in music appreciation courses and as part of the curriculum in schools?

T: Oh, you bet! It’s one of the things that really excites me. I’ve lectured in many business schools, colleges, high schools and elementary schools on Pandora. I know that it’s used in a lot of academic studies informally now, and I would expect that eventually this kind of system would be made available as an educational tool in some capacity. I think it could be a really interesting weapon for a music instructor or anyone connected to the arts.

Q: With record stores and traditional radio on the decline, do you feel Pandora is filling an important role that those entities provided?

T: I think Pandora is filling a couple of needs. The first has been around for some time and is not new: the inability people have to discover new music easily. I think that has been a problem for decades. It’s particularly acute for you as you get older, but I think it’s always been a frustration for most people, whether they know it or not. It’s the dimension of Pandora. It’s the reason Pandora has grown so fast—because we are bringing people back to music. So I think that is fundamentally one of our biggest contributions. I think our other contribution is giving access and visibility to tens of thousands of musicians who don’t get it anywhere else. So we are fundamentally changing what it means to be a musician, the prospects for your average working musician. My hope is that, ultimately, Pandora could help nurture the growth of a middle-class musician. When it comes to commerce specifically, we are a huge driver of sales. We sell through iTunes and Amazon, but we also sell through record stores. You are right though; the CD business is tough and on the decline.

Q: Do record labels understand that to innovate and thrive again, they will have to form partnerships in the pay-to-download digital sales model?

T: I think there is a huge adaptation that has to go on. The content rights owners are really going to embrace a whole bunch of different parts of the ecosystem, as partners. I think for a band to succeed, you need to have all the system working for you, and that requires you to take a cooperative approach to things.

Q: How can the music industry turn the tide and regain the customer loyalty?

T: It’s a big question. This might sound like a platitude, but I think that technology requires content owners and rights holders to really have an honest conversation with their patrons, with listeners and to be very responsive to what they want. So I think at its most basic level, bands and their labels will have to orient themselves around their listeners, spending a lot more time and effort—staying close to, responding to, growing with their audience. Sort of coming halfway instead of a ‘This is what we have, take it or leave it’ approach.

Q: Do you feel that the industry is moving toward a subscription model for music listening?

T: Our sense is that people will pay for things in one or two ways: they’ll pay for it literally by buying it, or they’ll pay for it by tolerating it—by listening or watching advertising. We believe that of those two, the latter is by far the much more common appetite. Even though we are having some success with subscriptions, it’s a very, very modest percentage of our overall listeners. We still believe that subscription is very much a niche business. It doesn’t mean that you still can’t build a healthy business; it means you still have to do it with advertising, too.

Q: What do you think in the next half century the music business will look like?

T: Frankly, I think people will look back 10, 20 years from now and point to the establishment of a statutory license for internet radio as one of the most fundamental changes in the business, because it allowed companies like ours to survive while playing an incredibly diverse catalog of music.

Q: What can record companies do to partner with Pandora, and what is keeping some record labels from partnering with you?

T: We don’t sign “deals” with labels. We only work through statutory agreements, so there’s no direct licensing with them. We have a ton of conversations with labels of all sizes who want to get their music on Pandora and in some cases advertise, and we do offer that. But there’s a very healthy level of discussion with individual artists, with labels, distributors, managers, you name it. It’s very alive right now and very exciting.

Q: Do you feel personally that the field of ticket sales needs to change or evolve as buyers are looking for more value in their purchases?

T: I think at a high level, the way ticket sales will evolve is that there will be more concerts; they’ll be smaller, and tickets will be cheaper, but they will be full. I think you’ll find more mid-sized venues being used much more effectively. We did a show with Aimee Mann about nine months ago in LA. We invited people to that show who had “thumbed-up” an Aimee Mann show or launched an Aimee Mann station and who were within driving distance of the club. We almost filled it up on a Tuesday night. I think that’s kind of a window into the future.

Q: What other areas of the music industry would you like to see changed as we move ahead?

T: For me, global licensing is the top of the list. Pandora is stuck in the US, and this is a crime. There needs to be an easy-to-use, reciprocal licensing arrangement across the globe. That is a must-have, I think. In order for webcasters to offer [streaming music], they need some kind of licensing agreements. In Pandora’s case, our agreement is one that we get from the government. It’s a great solution because that gives us permission to play everything without direct agreement with the tens of thousands of artists in our collection. So, it’s a wonderful facilitator trade. That same license doesn’t exist anywhere else—or, where it does, it is too expensive. There needs to be some kind of standardization that makes available a statutory license like we have in the US, at affordable rates, and to have it be ubiquitous. I think that is the key to opening up this opportunity to the world.

Q: What is preventing that from happening? Is it legislation?

T: Yes; it’s kind of a combination of things. In some cases, its labels; in some cases it’s frightened societies; in some cases it’s a trade policy. Sometimes it’s just lack of information; people aren’t aware of it. There’s no central way of making the decision. It’s a bit of a jungle, unfortunately.

Q: Should there be a campaign to get an initiative through Washington to support global licensing?

T: I’m all for campaigning, and that’s the reason we are here still. We organized ourselves in the US and put pressure on Congress to intervene and get this to happen. I think that could be powerful overseas if there was a way to organize it. I’m certainly a fan of it. I think what everybody is afraid of doing is making the commitment and looking back and feeling everybody is too cheap. No one wants to say that is okay and then saying they should have asked for more. We are doing so much good for musicians and labels in the US, and it’s not happening anywhere else because someone is afraid we are not paying enough when we are already paying a ton.

Q: What can Pandora Radio's supporters do to be part of this campaign?

T: The short answer, I think, is to sit tight for now. To the extent listeners can help—and it’s incredibly powerful when they do—I think it is best done in a very concerted, focused fashion. That would make sense if and when the time comes that we are just hitting a wall and want to start something very specific. Then, we’d certainly reach out and let people know.

Q: Is Pandora Radio on a stable path of growth now?

T: Yes, we can survive. I don’t want to give the impression that it’s all a bed of roses, though. Making this business is pushing a boulder up a hill. We pay an exceedingly heavy liability on licensing; that makes it really tough. But we are here to stay, which was not clear a couple of years ago. There are certainly things that need to be sorted out in terms of parity because we pay a lot more than any other form of radio. It’s not fair.

Q: How do you feel about Apple given the growth rate Pandora experienced through iphone users?

T: I think what they’ve done is one of the most amazing, if not the most amazing, set of industry-changing innovations in history. It’s an absolutely remarkable run to me, and they’ve opened up the opportunity for digital music to thrive. They are triggering growth in eco systems, and they’ve executed like no one I’ve ever seen before. The iPhone has been a complete game-changer for us. It doubled the growth rate and we now add 35,000-40,000 Pandora mobile app downloads a day just on the iPhone; it’s really incredible.

Q: Do you see yourself involved with Pandora for many years to come?

T: Yes, I’ll be involved the rest of my life.

Q: What does the future hold for Pandora in the next decade?

T: Well, in some ways we are at a stage where we are trying to execute on what we think is a pretty clear vision. The vision is ubiquity: making internet radio as easily accessible and as ubiquitously accessible as broadcast radio, if not more, so that you can access Pandora with any connected device, no matter where you are. And to focus on not only offering music through the stations and introducing people to it, but to help artists translate that into value for themselves. I think that’s a whole basket of things we can build that will translate the discovery and excitement that happens between a listener and Pandora into a connection directly with the band so the band can benefit from it—get someone to their show, get a new fan, sell more music, and build a career. I think there are signs that Pandora really can do that.

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