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Indaba Music

Pandora Media should buy Indaba Music

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Why Pandora Needs Indaba

Pandora Radio finds itself at a crossroads of sorts. The much ballyhooed company
debuted to great interest from both music lovers as well as advertisers. Now, however,
Pandora has two nagging issues- expensive licensing fees and royalty costs from record
labels, and the emergence of intense competition from such companies as Spotify, which
now has 3 million paying members and a promising partnership with Facebook, and
Grooveshark, which has over 35 million registered users.

In order for Pandora to remain successful it needs to continue to increase revenue but also
find other ways to scale its business and decrease costs. One way it can tackle the issue of
licensing fees is to acquire a promising startup which creates independent music.

Indaba Music is a burgeoning web community of independent musical artists. Indaba’s
website allows for any artist to upload his or her music, as well as collaborate with others
in active mixing sessions. With close to 700,000 artists currently signed up on Indaba,
and over 400,000 active recording sessions between members, the website has had no
issue with membership. Now before you dismiss Indaba as a mini-social network for
music, it should be noted that 26 recordings through Indaba have been released by major
labels, thereby legitimizing Indaba’s place in the music world. (Queen Latifa also sits on
the board.)

Acquiring Indaba allows Pandora to accomplish two things: One, by receiving a whole
slew of new and independent artists to put into their music database, royalties will be
significantly reduced. An independent artist represented through Indaba will produce a
much lower royalty rate, if at all. And if one is worried about the quality of Pandora’s
music being watered down by the new influx of Indaba artists, this issue is mitigated
by way of Pandora’s revered rating system, which will allow the glut of Indaba’s music
stable to be rated within days. Any artist/song receiving poor ratings simply won’t be put
into playlists.

The second accomplishment would be maintaining the rights to new artists. If a new
artist becomes very popular through Indaba, Pandora would own the rights, and could
act as a record label and release this artist’s music for income- skirting both royalty fees
and gaining a profitable entry in the world of major labels. This goes without saying that
Pandora can also ensure said artist gets proper promotion on its website and playlists.

By acquiring Indaba, Pandora can offset a great portion of licensing fees that it owes
major labels. Any acquisition would also likely have some workforce synergies at the
senior management levels.

Author's relationship to Indaba Music:


Author's relationship to Pandora Media:

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Indaba Music

Indaba Music is a social network for musicians and a web application that enables people to create music with each other online. They have recently launched programs with artists including Mariah Carey, Yo-Yo Ma, and Third Eye Blind. Their in-browser production console has great features including waveform graphics in the track views, LED level meters, adjustable volume changes over the timeline and moveable markers. There are various other websites in the same field with a slightly different take on online music sharing, collaboration and production, some of which include Splice, Jamglue, YourSpins, and Mix2r.

Pandora Media

Pandora Radio is an internet radio service, recommendation service, and the custodian of the Music Genome Project. Users enter a song or artist that they enjoy, and the service responds by playing selections that are musically similar. Users provide feedback on approval or disapproval of individual songs, which Pandora takes into account for future selections. While listening, users are offered the ability to buy the songs or albums at various online retailers. As part of the Music Genome Project, over 400 different musical attributes are considered when selecting the next song. These 400 attributes are combined into larger groups called focus traits. There are 2,000 focus traits. Examples of these are rhythm syncopation, key tonality, vocal harmonies, and displayed instrumental proficiency. The Music Genome Project is what powers Pandora’s personalization, as it is a detailed, hand-built musical taxonomy. Using this musicological “DNA” and constant listener feedback Pandora crafts personalized stations from the more than 800,000 songs that have been analyzed since the project began in January 2000. More than 75 million people throughout the United States listen to personalized radio stations for free on Pandora through their PCs, mobile phones and devices such as the iPad, and connected in-house devices ranging from TVs to set-top boxes to Blu-Ray players. Mobile technology has been a significant factor in the growth and popularity of Pandora, starting with the introduction of the Apple app store for the iPhone in the Summer of 2008. Pandora instantly became one of the most top downloaded apps and today, according to Nielsen, is one of the top five most popular apps across all smart-phone platforms. Pandora is mostly free and, thanks to connectivity, available everywhere consumers are – at the office, at home, in the car and all points in between. In 2009 the Company announced that Pandora would be incorporated into the dashboard in Ford cars via SYNC technology; GM has already followed in announcing plans to integrate Pandora into its vehicles’ OnStar system. Since more than 50% of radio listening happens in the car, this was a crucial arena for Pandora. Also in 2009, Pandora announced that an agreement had been reached regarding the royalty issue, which would significantly reduce the royalty rate, making it possible for Pandora to stay in business. It announced, too, that free listening would be limited to 40 hours per month but can be extended to unlimited for that month for $0.99. “The revised royalties are quite high,” the company’s blog notes, “higher in fact than any other form of radio.” The extended listening fee differs from “upgrading,” which also disables advertisements, increases the bitrate to 192 kbps, and provides a dedicated music player (as opposed to listening through browser). This service, known as “Pandora One”, costs $36 and is billed annually. Due to copyright and licensing rulings, Pandora is only available in the United States, but Pandora has said that it has plans to extend its service to a global market.

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