Only a few hours after stepping off a plane at Auckland Airport on 7 April, Pandora founder Tim Westergren sat down with us for a quick chat at the Generator, the New Zealand headquarters of the company. Although Westergren's arrival in the country came as part of a promotional push to officially introduce the music-streaming platform to the New Zealand market after its release late last year, Pandora is by no means new to the Kiwi market.
The November 2013 release of Pandora in New Zealand was, in a sense, a re-release, because the company's services had previously been used illicitly by Kiwis and Australians who pretended to be US residents by entering fake zip codes. Since Pandora did not have the necessary licensing agreements to operate in the Antipodean region, the site was eventually geo-blocked, but this problem has now been rectified, making the company's streaming services available in the United States, New Zealand and Australia.
Westergren says that the limitation in terms of his offering only being available in three countries isn't attributed to a lack of interest in entering other nations but rather due to conservative legislation that precludes Pandora – or other streaming sites – from entering some markets.
"We'd [enter other markets] tomorrow if we had the licences ... What limits us is not our desire to go to these other countries. It's just the licensing issue. Most countries aren't as progressive as New Zealand and Australia, and the rights agencies are just more conservative and less forward-thinking, frankly," he says.
He believes that this restrictive approach is "suffocating" the smaller-scale music industry in the sense that it isn't fostering any growth. Speaking as a former musician, Westergren says that the irony of this is that legislation, which was originally enacted to protect musicians, is now not serving artists at all.
"I played pre-internet, but I would kill to be a musician now. But I would also be massively frustrated, due to the impediments being put in front of services that are so good for artists. The potential for these platforms is immense."
"I don't think all digital sources are good. I'm not saying 'blow open the door, so that anyone can launch anything they want'. But there are certain servers, and I count us among them, who have nothing but positive benefits to the industry."
However, these sentiments aren't shared by Radiohead frontman Thom Yorke, who recently pulled all his music from Spotify, saying that "new artists get paid fuck all with this model". His dissatisfaction derives from the fact that he feels the royalty-based payment structure does not sufficiently remunerate artists when their songs are played.
Although Yorke's argument has been levelled at the internet age, the reasoning he uses rhymes with criticisms that have been used against the music industry—particularly music executives—at various times throughout history.
If anything, Westergren believes that modern shift toward internet-based radio is an improvement on what previously existed.
"Fair compensation is a central tenet of Pandora. I'm a musician myself. It's deeply in our DNA, and we pay handsomely; we pay north of 50 percent of our overall revenue on royalties, which equated to 340 million dollars last year and we're proud of that."
"One of the great economic shifts or bright spots in the music industry is this move from AM/FM to internet radio, because you're going from a form of radio that does not pay performers at all – in the US there's no performance royalty – to one that pays them well. So the faster that transition happens, the better for artists."
Despite these assertions, Pandora recently faced a lawsuit from the American Society of Composers, Authors and Publishers (ASCAP) – a one-hundred-year-old licensing group in the United States – for paying too low a percentage in terms of royalties. In making her decision, Federal Judge Denise L Cote found that the current rate paid by Pandora was in line with American legislation. There have however not been any similar lawsuits filed by APRA against Pandora in New Zealand at this stage, but it will be interesting to see what happens as digital listening channels continue to proliferate.
Not just royalties
Westergren says that one of the main problems with traditional radio channels is that they have historically been very restricted in what they play, meaning that young, talented artists don't necessarily get the exposure they need to forge careers in the industry.
These thoughts were this week echoed by TRN's chief content officer Dean Buchanan, who said that it has become increasingly difficult for radio to serve as a platform by which new talent is exposed, because most stations are playing the same music, which just happens to be popular at the time.
Buchanan says that TRN aims to address this problem by changing the approach ZM employs when selecting music for its playlists.
“We will play and risk new songs to expose local and international talent, rather than being worried about what other stations are playing … So you’ll hear a combination of new talent and the hits you love,” he says.
The Pandora founder explains that one of the strongest elements about his online service is that its agnostic approach to music recommendation gives playing time not only of well-known artists but also to artists that the listener might not be aware of.
Powered by a comprehensive catalogue of music analysis called the Genome Project, Pandora's recommendation system makes recommendations based not on genres but rather on similarities between songs from a musicological perspective. This almost scientific method removes the bias given to popular songs, and makes it more likely for passive listeners to hear music that would normally fall under their radar.
"Our target is really the casual listener: the person who wants to listen to music while doing something else. This is really the way most people spend their time. Something like 80 percent of the time people spend listening to music is spent listening to radio. Only a small portion is loading in CDs or building a custom playlist. That's a smaller part of the average person's appetite. We're really the place that you want to go to, if you just want to hit a button and have the music come out."
In addition to this, Westergren also says that they are currently working on a series of add-ons that could help musicians communicate with fans.
"Part of the promise of the medium is not just that it allows artists to participate in the revenue of radio. It's also a really powerful platform to market. We're actually currently building a set of features on Pandora, which are designed to allow artists to interact with their fans. So they would be able to log in and geographically target audiences before a show," says Westergren.
Pandora vs Spotify vs iHeartRadio
Despite being the newcomer in the internet radio battle for Kiwi ears, Pandora has already racked up 194,000 registered users and the company's PR spokesperson Chris Henry (from 818 Entertainment) says that they expect to reach the 200,000 mark sometime next week.
Comparatively, iHeartRadio currently has 170,000 users and, while this number is below that which has been recorded by Pandora, the company has enjoyed significant subscriber growth from the 100,000 that were registered at the end of last year.
Spotify leads the Kiwi internet radio fight for ears in terms of numbers, with over 200,000 users actively streaming music via its offering at the moment.
But numbers alone aren't necessarily enough to ensure success in the New Zealand market. It's also a case of using the subscriber base as means by which to encourage advertisers to share their clients' messages.
Spotify has thus far been quite successful in this regard, in the sense that local advertising is played to all non-paying subscribers while there are also banner ads visible on the player.
The general consensus among analysts in the States is that Spotify and Pandora are the most likely internet radio servers to enjoy long-term success, but this isn't necessarily the case in New Zealand, where iHeartRadio has proved popular by keeping the focus on local content.
Last year, iHeartRadio collaborated with TRN to launch the Alternative Commentary Collective, which proved incredibly popular among cricket fans. And it seems that TRN will continue using this approach, because the network announced on Tuesday that it has established an ongoing partnership with Mike Lane—who helped found the Beige Brigade and conceptualised the Alternative Commentary Collective—and he will head a branding engagement team that develops creative content to deliver branded messages across all of TRN’s available channels, including iHeartRadio.
While, iHeartRadio is focusing on content, it seems that Spotify has instead opted to form smart commercial partnerships in an effort to consolidate its hold on the market. In addition to working with Coca-Cola on an international level, Spotify has also shacked up with Telecom in New Zealand, a move that has enabled the online streaming server to win even more subscribers.
Interestingly, Pandora has also opted for a collaborative approach by having its service integrated into a variety of devices, including Samsung Smart TVs, Sonos wireless headphones, Mazda and Toyota car stereos, and Sony and Pioneer sound systems.
Another key element in Pandora's success abroad is that only 60 seconds of advertising are played per one hour of music playing time. What this means is that most subscribers aren't encouraged to evade ads by paying the monthly subscription fee—something which can't be said of Spotify, where the ad frequency results in many users shifting across to the paid format.
"Pandora’s focus is on ad-funded content; on bringing free music to New Zealanders that they love anytime, anywhere. They have a subscription service called Pandora One for those who are vehemently opposed to ads playing and this sits at around two percent of the subscribers. It’s very low as ad serving is minimal so not many people choose that," says the company's sales director Melanie Reece.
As part of Westergren's visit to New Zealand, he spoke to advertising executives in the industry about the benefits of advertising via Pandora. And if his speech was as effective at convincing Kiwi advertisers as it has been with advertisers in the States, then Pandora certainly stands a good chance of becoming the dominant player in New Zealand's online radio market.