In all the talk about the Apple Music announcement yesterday, mentions of Pandora were nowhere to be found. Today, though, the company’s stock fell by 3 percent.
Investors are nervous. Apple is known for entering into a market and disrupting the status quo. Pandora also hasn’t really introduced anything particularly innovative beyond its original product. But to stay ahead of the game, it might not have to: It could just buy Tidal.
Pandora remains pretty popular. Out of a survey of roughly 2,000 people, 45 percent said they use Pandora, according to a recent survey by Statista. Comparatively, iTunes Radio and iHeartRadio captured about 16 percent of listeners, and 13 percent of people said they listened to Spotify. Pandora is also profitable, while Spotify is struggling to squelch losses.
Pandora posted its biggest profit, $12.2 million, in the fourth quarter of 2014. In the subsequent quarter, the company showed a giant net loss of $48 million (the bulk of which was spent on sales and marketing efforts). But even with emerging competitors eating away at the market, Pandora still boasts nearly 80 million active listeners.
Tidal is the newest streaming service on the block. The service was first launched by Swedish company Aspiro A/B, which also owned another streaming service called WiMP. Shortly after Tidal launched, rapper Jay Z scooped up Aspiro for $56 million. He’s since relaunched Tidal as a dual-tiered subscription service for high-quality streaming. Tidal differentiates itself by purporting to pay musicians double the royalties that services like Spotify offer. To illustrate industry backing, at launch a slew of celebrities including Madonna, Kanye West, and Nicki Minaj joined Jay Z to introduce the new service.
But reception has been less than warm, partly due to a badly executed marketing strategy. While promoting its mission to get smaller musicians paid, the service mostly advertised highly paid celebrity musicians — not the lesser-known acts. As a result, potential users came away with the sense that Tidal was an expensive version of Spotify, with little additional value.
While users may have a hard time understanding Tidal’s value, Pandora might not.
More music
Tidal has 30 million tracks in its library, roughly the same as Spotify and Apple Music. Pandora only has about a million tracks, and that number may dwindle. In the past few years, Pandora has been embroiled in litigation over royalty fees with major labels like Sony Universal and Warner Music. Acquiring Tidal could give the company the boost in tracks it needs and a refresh on its relationships with labels and artists.
Pandora would also be able to add individual track streaming, something the company has stayed away from. Individual track streaming is growing in popularity and could serve as a bonus for Pandora’s paid subscribers. With a Tidal acquisition, Pandora could also introduce a new, higher-value subscription tier that offers exclusive content.
In addition to more music, a Tidal acquisition would also allow Pandora to grow internationally. Pandora already operates in the U.S., Australia, and New Zealand, but it’s failed to expand more broadly. Tidal, on the other hand, is available in 31 countries. While Tidal only had about 540,000 subscribers around the time of its launch, the big win here for Pandora is about gaining reach into new territories and expanding its product offering.
Pandora may have a lot to gain from this kind of acquisition, but what’s in it for Tidal — and will Jay Z sell? Reports say the rapper has been investing a lot of personal time into the business, working on the site daily and wooing new subscribers with personal phone calls. However, Jay Z is a smart businessman who’s invested in everything from the Brooklyn Nets to champagne. Selling a company is not beyond possibility.
With Dr. Dre’s Beats business selling for $3 billion to Apple, Jay Z may have high expectations for an eventual sale. However, with less than a billion dollars in annual revenue, Pandora isn’t going to be able to front multi-billions for Tidal.
How much Tidal could ultimately sell for depends on how much traction the company is able to get. After all, Jay Z may have the gumption and network to attract the right talent and content, but he may not be able to attract listeners. If that’s the case, Jay Z may be motivated to get rid of it. In which case, a Pandora/Tidal partnership might be more feasible.
Tidal also stands to benefit under Pandora ownership.
Wider audience
If Pandora were to buy Tidal, it could immediately put the premium service in front of more eyes. In the U.S., the majority of listeners are on Pandora. The company has made a name for itself as the next generation of radio and as a music discovery tool. While a ton of new companies have emerged with similar products, like Spotify, iHeartRadio, iTunes Radio, Rdio, and others, Pandora still remains the most popular.
“As we’ve seen for years, new products attract trial users, but the real question is sustained attention. Since 2013, in the face of countless ‘Pandora killers,’ listener hours are up 25 percent and our market share of radio listening has grown from 8.6 percent to 10 percent,” said Pandora founder Tim Westergren in an email to VentureBeat.
In addition to a user base, Pandora could also help turn Tidal into a more personalized premium service.
Personalization
“It’s increasingly clear that personalized radio is the future, and building a great personalized radio product is fantastically hard to do,” says Westergren. In order to create a personalized experience, a company needs a massive amount of user data. Pandora has over 15 years’ worth. To refine its data, last year the company introduced a new interface to let users tailor and manage their musical preferences.
But even with additional user information, Pandora doesn’t have the diversity of product to personalize content the way that a Spotify or Apple Music can. Access to more tracks and different types of streaming products through Tidal could only help Pandora to understand more about its audience.
The launch of Apple Music has definitely put pressure on others in the music streaming business to step up their game, but it’s by no means a death knell for competing services. Rather, the new product will likely yield a slew of interesting partnerships and unexpected closures. If there’s one thing we can bet on from Silicon Valley, it’s that whatever happens will be interesting.
Besides, it’s not unprecedented for two players in the same industry to consolidate in order to compete.
