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
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
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.