Pandora Media Inc. (P) is embarking on an overseas expansion aimed at luring new users while allaying investor concerns that it may struggle to grow outside the U.S.
Pandora’s Internet radio service, which has been available only in the U.S., initiated its first push overseas at the end of June with trials in Australia and New Zealand, Chief Executive Officer Joe Kennedy said. The service in the two countries is currently just on the Web, not mobile devices, and is free of advertisements.
“Our focus is to have conversations with those listeners to understand and get their feedback about the service, the music and great Australian bands that they’re not hearing that we need to add to the collection,” Kennedy said yesterday in an interview. “We have had ongoing conversations in many parts of the world and reached agreements with rights-holder groups in these two countries.”
Founded by Tim Westergren in 2000, Pandora has struggled in the public markets, slumping 38 percent since its initial offering in June of last year. One issue for investors is the difficulty of establishing royalty agreements. The Oakland, California-based company said in its prospectus that while expanding the service outside of the U.S. is part of its long- term strategy, that effort “involves numerous risks and challenges,” because licensing terms in other countries are “prohibitively expensive.”
In 2007, Pandora blocked access to its site from countries outside the U.S., saying that it didn’t have licensing agreements in place to operate internationally.
“Trust that we will continue working as hard as we can to obtain the licenses we need, and to push for the establishment of effective, centralized licensing bodies around the world,” Westergren said in a blog post in May 2007.
In 2009, Pandora struck a royalty agreement with the nonprofit music industry group SoundExchange to compensate artists for the songs it plays in the U.S. With no such institution handling international royalties, Pandora has to negotiate deals separately.
“It’s a very complicated chess match to build a catalog and attack country by country,” said Steven Frankel, an analyst at Dougherty & Co. in Boston, who rates the stock a sell and doesn’t own it. “The question is, how quickly can they build up a meaningful international business and what’s the cost of market entry.”
Kennedy said that Pandora expects to eventually include ads in Australia and New Zealand and to introduce the service on mobile devices, which now account for the majority of revenue. For now, the company is just collecting as much data as possible on user preferences, while Westergren converses with the new customer base.
“Tim is personally answering hundreds of e-mails, acknowledging feedback and having conversations,” Kennedy said.
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