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Ey Case Compeition Pandora

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Ernst and Young Case Competition

Ernst and Young Case Competition


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  • http://www.stylecareer.com/indierecord_label.shtml
  • http://seattletimes.nwsource.com/html/businesstechnology/2011340931_pandora15.html
  • http://gigaom.com/2010/01/12/pandora-everywhere/
  • Transcript

    • 1. Purple & GOLD
      C O N S U L T I N G
      Cameron Chinn
      Venkat Rao
      Elaine Raymond
      Vance Roush
    • 2. Objective
      Goal
      Position Pandora to create new revenue streams and refine existing ones, for long-term sustained growth
      NPV = $11,195,609
      Purple &GOLD
      C O N S U L T I N G
      Situation
      Analysis
      Strategy
      Action
    • 3. Introduction
      Situation
      Purple &GOLD
      C O N S U L T I N G
    • 4. Problem
      Purple &GOLD
      C O N S U L T I N G
      Situation
      Analysis
      Action
      Strategy
      Conclusion
      Analysis
    • 5. Industry Potential
      300K Subscribers
      48M Users
      Purple &GOLD
      C O N S U L T I N G
      Increasing Partners and Venues
      In 2008, Pandora built an iPhone app that let people stream music. Almost immediately, 35,000 new users a day joined Pandora from their cellphones, doubling the number of daily sign-ups
      At the end of 2009, Pandora reported its first profitable quarter and $50 million in annual revenue — mostly from ads and the rest from subscriptions and downloads. Revenue will probably be $100 million this year, said Ralph Schackart, a digital-media analyst at William Blair.
      Situation
      Analysis
      Action
      Strategy
      Conclusion
      Analysis
    • 6. Broad Competitive Landscape
      Purple &GOLD
      C O N S U L T I N G
      Situation
      Analysis
      Action
      Strategy
      Conclusion
      Analysis
    • 7. Competitive Options
      Purple &GOLD
      C O N S U L T I N G
      Proven that consumers prefer Music Genome Project (recommendations from music experts) over community generated recommendations
      Situation
      Analysis
      Action
      Strategy
      Conclusion
      Analysis
    • 8. Pandora’s Current Business Model
      240.4 Million People Ages 14+*
      29% Stream Online Audiot
      20% of radio users listen to online
      radio – Go beyond the browser!
      69.7 Million
      Potential Listeners
      Users
      Partners
      • Mobile
      • 9. Home Entertainment
      -Cars
      Ad Partners
      Purple &GOLD
      C O N S U L T I N G
      New Revenue Stream
      New Revenue Stream
      Subscription Revenue
      Ad Revenue
      MAXIMIZE
      Situation
      Analysis
      Action
      Strategy
      Conclusion
      Analysis
    • 10. Situation
      Analysis
      Purple &GOLD
      C O N S U L T I N G
    • 11. Strategy Options
      Purple &GOLD
      C O N S U L T I N G
      Situation
      Analysis
      Action
      Strategy
      Conclusion
      Analysis
    • 12. Utilizing the Framework
      Evaluating Key Factors:
      • Investment Costs
      • 13. Revenue Generation
      • 14. Increase in Brand Value
      • 15. Legal Barriers
      • 16. Feasability
      Purple &GOLD
      Possible Strategies:
      • Pandora ‘Open Mic’
      • 17. Pandora Video
      • 18. Pandora International
      • 19. Refine Current Offerings
      C O N S U L T I N G
      Situation
      Analysis
      Action
      Strategy
      Conclusion
      Analysis
    • 20. Framework Analysis
      Purple &GOLD
      C O N S U L T I N G
      Situation
      Analysis
      Action
      Strategy
      Conclusion
      Analysis
    • 21. GE Analysis
      Open Mic
      Pandora Intl
      Pandora Video
      Refinement
      High
      Payoff
      Purple &GOLD
      C O N S U L T I N G
      Low
      High
      Low
      Feasibility
      Situation
      Analysis
      Action
      Strategy
      Conclusion
      Analysis
    • 22. Analysis
      Strategy
      Purple &GOLD
      C O N S U L T I N G
    • 23. Overall Strategy
      Pandora needs Long-Term Sustainable Growth Model  Ad revenue and hopeful subscriptions not enough
      Short-Term Strategy
      “Open Mic” Platform
      Long-Term Strategy
      Refinement is sustainable
      Record Label
      Product extension around valued artists
      Purple &GOLD
      C O N S U L T I N G
      Situation
      Analysis
      Action
      Strategy
      Conclusion
      Analysis
    • 24. Refinement
      Lower Time Limit
      20-40 hours a month
      11.9% of users
      21% of hours
      No direct revenue from users
      Annual Cost Savings = $586,000
      First continuance payment at 20 hours
      Purple &GOLD
      C O N S U L T I N G
      Situation
      Analysis
      Action
      Strategy
      Conclusion
      Analysis
    • 25. Refinement
      Watch Advertisement / Payment
      Continuance fees:
      Watch extended ad
      Pay continuance fee
      20 hrs - watch 1-min commercial or pay $.25
      40 hrs - watch 2 1-min commercial or pay $.99
      Revenue from video advertisement is $90 per 1000 views
      Purple &GOLD
      C O N S U L T I N G
      Situation
      Analysis
      Action
      Strategy
      Conclusion
      Analysis
    • 26. Open Mic
      • Online Battle of the Bands
      • 27. Subscriber to enter
      • 28. 250,000 new subscriptions over 3 years = $9,000,000
      • 29. Registered to vote
      • 30. $10 per song
      • 31. Projected participation:
      • 32. Myspace music pages = 8 million
      • 33. Year 1 = 200,000 songs submitted
      • 34. Year 2 = 300,000 songs submitted
      • 35. Year 3 = 500,000 songs submitted
      • 36. Available for listening/voting for one week
      Purple &GOLD
      C O N S U L T I N G
      Situation
      Analysis
      Action
      Strategy
      Conclusion
      Analysis
    • 37. Open Mic
      • Incentive:
      • 38. Potential heard by 50 million listeners (1/6 of the US population)
      • 39. Your own channel
      • 40. Weekly “Winner’s Spotlight”
      • 41. Download the song
      • 42. Become part of Pandora’s music library
      • 43. Set-up
      • 44. Top ten songs listed on home page
      • 45. See all page
      • 46. Searchable by genre, region, artist
      • 47. Thumbs up, thumbs down
      • 48. Fits with Music Genome Project (Core Competency)
      Purple &GOLD
      C O N S U L T I N G
      CROWD-SOURCING
      Situation
      Analysis
      Action
      Strategy
      Conclusion
      Analysis
    • 49. Purple &GOLD
      C O N S U L T I N G
      Situation
      Analysis
      Action
      Strategy
      Conclusion
      Analysis
    • 50. Joe Guitar18-34 aspiring musician
      8M Myspace Music
      Artists
      Purple &GOLD
      C O N S U L T I N G
      Situation
      Analysis
      Action
      Strategy
      Conclusion
      Analysis
    • 51. Online Record Label for Indie Artists
      • Access to artists with established following (Open Mic)
      • 52. Ability to gauge where concerts would be on demand and what demographic to target
      • 53. Data to track most popular music trends
      • 54. Established Distribution Network
      • 55. Market Potential: Indie Market
      • 56. The global music market is approximately $40 to $48 billion
      • 57. 30% of the global music market belongs to indie labels ($12 to $16 billion)
      • 58. Internet sales in 2004 account for 6% of overall units sold
      Purple &GOLD
      C O N S U L T I N G
      Situation
      Analysis
      Action
      Strategy
      Conclusion
      Analysis
    • 59. Competitor Reactions
      Open Mic
      There may be imitation, but Pandora will have the first mover advantage
      Indie Online Record Label 
      Competitors may start their own record label, but Pandora has a larger user base in the US, therefore more potential fans than the competition
      Purple &GOLD
      C O N S U L T I N G
      Situation
      Analysis
      Action
      Strategy
      Conclusion
      Analysis
    • 60. Strategy
      Action
      Purple &GOLD
      C O N S U L T I N G
    • 61. Financials
      Revenue Assumptions
      Purple &GOLD
      C O N S U L T I N G
      Situation
      Analysis
      Action
      Strategy
      Conclusion
      Analysis
    • 62. Financials
      Cost Assumptions
      Purple &GOLD
      C O N S U L T I N G
      Situation
      Analysis
      Action
      Strategy
      Conclusion
      Analysis
    • 63. Financials
      Purple &GOLD
      C O N S U L T I N G
      NPV = $11,195,609
      Situation
      Analysis
      Action
      Strategy
      Conclusion
      Analysis
    • 64. Timeline
      Launch ‘Open Mic’
      Evaluate Feasability of Online Record Label
      Implement Video Ads
      Purchase TV ads on MTV
      Purple &GOLD
      2011
      2012
      2013
      C O N S U L T I N G
      Performance Analysis of Initiatives
      Web Still Ads on Facebook & MTV.com
      Purchase Web Video Ads on Hulu
      Purchase Ad Banners at Concert Venues
      Situation
      Analysis
      Action
      Strategy
      Conclusion
      Analysis
    • 65. Action
      Conclusion
      Purple &GOLD
      C O N S U L T I N G
    • 66. Competitor Analysis
      • Limited usage of “Next
      Track” option
      • No song search capability
      Personalized Radio
      Type
      Advantages
      Disadvantages
      • Individual song analysis
      • 67. Free to use online
      • 68. User friendly interface
      • 69. Portable option
      • 70. Complex user interface
      • 71. Recommendations requires
      software download
      • Radio based on genre
      • 72. Widespread use
      • 73. Social networking
      User Radio
      • Preset stations only
      • 74. Subscription fee
      • 75. Stations don’t play desired
      music
      Streaming Radio
      • Brand-name recognition
      • 76. Portable
      • 77. Cost per individual song
      • 78. Many alternatives
      • 79. Only accessible for credit
      card holders
      • Portable
      • 80. Song search capability
      Digital Downloads
    • 81. Financial Projections
      • Expanding user base
      • 82. Increasing user referrals
      • 83. Growing subscription
      rates
      Pandora begins to expend resources on advertising, resulting in:
      Revenue by Source
      200720082009201020112012
      200720082009201020112012
      Advertisements Subscriptions
      500% growth in user base over 5 years increases revenue over tenfold.
      Expected Financials
      Revenue and EBIT
      Background | Market | Competition | Business Model | Financials| Exit Strategy
    • 84. Financial Calculations
    • 85. Revenue Calculations
      Revenue Calculations (all numbers are averages)
      • Benchmark of $14 million in 2007
      • 86. CPM $10-50 based on type of advertising package
      • 87. Users go on 2-3 times per week for 2-3 hours
      Increase in user acquisition rate based on continuation of viral growth and implementation of direct advertising and new products.
      Revenue sources divert from advertisements to subscriptions. While ad revenue continues to rise, its rate of growth decreases as number of users increases.
      Percent of Overall Revenue for Each Source in a Given Year
    • 88. Market Trend Calculations (Cont.)
      37.56% Increase of Broadband users increase per year
      39% of Internet users use Streaming Audio
      x
      37.56% Increase of Broadband users increase per year
      14.5% of Internet users use Streaming Audio
    • 89. All Competitors
    • 90. Relationships Between Labels & Media
      • Case Study
      • 91. http://www.fabchannel.com/
      • 92. Online Concert Archive
      • 93. Very Popular in Europe
      • 94. BUT record labels hurting
      • 95. Hesitant to make any deals with strictly web companies
      • 96. Radio vs Online Radio Dichotomy
      • 97. Cash is King!
    • Pandora and the iPhone
      • Users are buying about a million songs a month now from these affiliate links on Pandora
      • 98. 20% are coming directly from Pandora’s iPhone app, which includes an easy link to open the iPhone’s iTunes app, and buy a track.
      • 99. Another feature driving affiliate sales is the bulk music purchase option. This allows you to bookmark songs on Pandora, and with one click buy them all on either iTunes or Amazon.
      • 100. 10% of web users who are buying music through Pandora are using this bulk buy feature
    • Pandora Projected Revenue
      At the end of 2009, Pandora reported its first profitable quarter and $50 million in annual revenue — mostly from ads and the rest from subscriptions and payments from iTunes and Amazon.com when people buy music. Revenue will probably be $100 million this year, said Ralph Schackart, a digital-media analyst at William Blair.
    • 101. Pandora Playing Everywhere
      • Devices made by LG, Samsung, Sony, Sanyo, Haier, Divx, Toshiba and Panasonic
      • 102. Biggest boost – embedding Pandora in automobiles
      • 103. Ford, Alpine and Pioneer are three companies that are going to be putting Pandora inside their cars and automobile music systems, respectively.
      • 104. The service will piggy-back on 3G wireless connections on the latest generation of cell phones.
      • 105. Nearly 47 percent of radio listening is in the car
    • Imeem and Last.fm partner with 4 major record labels
      Imeem
      http://mashable.com/2007/12/10/imeem-universal/
      Last.fm
      http://mashable.com/2008/01/23/lastfm-free-music/
    • 106. Fired Customers
      “Fired” Customers
      35% choose not to watch commercial or pay
      >40 hr users are subscribers or pay
      So, 20-40 users are most unprofitable
      35% of 20-40 hr users = 666,400 users
      Only 4% of total users, but save royalty costs
    • 107. Risks
      Watch ad v. pay
      Users don’t pay or watch
      Deters users from site
      Open Mic
      Lack of participation in contest
      Lack of new users/subscribers
      Advertising costs exceed budget
      Lack of awareness
      Quality control

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