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Why the Pandora, Rdio Deal Makes a Lot of Sense [Cortney Harding]

makes sensePandora has acquired the assets of music streamer Rdio for $75 million and will use them to add to its paid offerings. Does the deal make sense and should it worry Spotify, Apple Music and others.  Music industry consultant Cortney Harding says yes to both and explains why.

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By music industry consultant and Hypebot's Music Business Podcast co-host Cortney Harding.

With ever-shinier new music services rolling out on a regular basis, it was easy to forget about Pandora, the old warhorse that’s been in the game forever. It’s a public company, and, well, just not a very sexy one. This is not to diss anyone I know who works there — Pandora is what it is, and it’s damn good at doing it. According to stats released over the summer, 74.9 million people agree.

As one of those lean-forward music nerds, I’m not a fan of Pandora, because of its limited catalog and lack of control. But I know many, many people who just want to hear stuff they know they’ll like and don’t mind hearing the same track every session, because they’re used to listening to terrestrial radio. Pandora essentially provides all the benefits of an old-school radio station (not having to think too much, hearing familiar tracks) with very few of the downsides (Pandora’s ads are shorter and less frequent, and you have some control in starting the station). I’ll admit they had a good thing going.

Pandora-logoGiven all that, it came as a bit of a surprise when Pandora signed a multi-year licensing deal with Sony/ATV. A quick primer — unlike interactive services like Spotify, Pandora doesn’t need to have deals with individual labels or publishers; it pays one rate, per stream, set by the government. The deal terms weren’t specified, but Sony/ATV made it clear their songwriters would now receive a higher per-track rate than the current one.

In the wake of that move, it didn’t come as much of a surprise when Pandora announced that it was buying struggling streaming music service Rdio. The rumor had been circulating for a while, and it made sense. Cumulus Media, which owns a stake in Rdio, saw its stock plunge 80%, and the streaming service never quite broke out of the also-ran category, although it has plenty of fans. Pandora, on the other hand, has recently seen share prices rise due to increases in ad sales, and could potentially make the move.

Does The Deal Make Sense?

So does the deal make sense for Pandora, not just from a financial perspective, but a product perspective? Absolutely.

For one, many of the Pandora users I know have expressed an interest in having a slighter higher level of control. They don’t want the all-in, on-demand experience that something like Spotify provides, but they do want to be able to have a little more say in what they listen to. Pandora incorporating Rdio and allowing users to exert a little more control is a huge selling point. Interestingly, YouTube Music has a somewhat similar function — you pick an artist and then set a slider; on one end, you get only songs by that artist, and on the other end, you get a full range of new tracks. Maybe people want to experiment based on their mood and openness to hearing new music?

RdioThe other thing Rdio can provide Pandora with is a social sharing experience, something the app lacks. Certainly more casual users won’t be as excited to post playlists as music nerds, but there is something to be said for letting others know what you’re listening to and what you like. If you combined Pandora’s Music Genome with the ability to create playlists that you can save and share and call up on-demand, that could be huge for many people.

Other streaming services should be very worried. Pandora has huge market penetration and is already in millions of cars, as well as on phones and desktops. Its brand is pretty strong; other radio services, at least those in the online only space, don’t even come close. People already use it and are used to it — if they want to keep the classic experience, great; if they want to branch out and try new features, also great.

Of course, other streaming services all have radio plays — Apple with Beats1; Spotify with artist stations, etc. So in a way it only makes sense for Pandora to catch up with them and diversify its offering. And with their strong brand equity, they’d be even further ahead in the battle for ears and dollars.

When I originally wrote this piece, I wrote it based on just the rumors, and planned on posting it the day after the news initially broke. As I edited it, though, I was shocked at how little I changed. Pandora’s Rdio deal makes a lot of sense — and other services should sleep a little less soundly tonight.

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