Pandora CTO Reveals Half of The U.S. Pays $0 For Music

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Today at GigaOm’s RoadMap conference in San Francisco, Pandora CTO Tom Conrad revealed that his company aims to monetize the vast majority of listeners who pay little or nothing per year for music. Conrad explained that “Over half of the U.S. doesn’t pay anything for music each year”. He continued that another 40% of the population only pay about $15 a year, the cost of an album or two. While there are opportunities to build businesses on the 10% who are willing to pay more, Pandora’s plans to focus on monetizing the majority via advertisements. Other music companies might be wise to target the non-paying segment as well.

Conrad was asked about whether the rapidly growing Spotify was a threat. That service now has 2.5 million daily active users and 7.5 million monthly active users. Conrad said “I see Spotify as largely complementary to what Pandora does. Spotify’s CEO Daniel Ek says he thinks Spotify is the future of the record store, and that Pandora is the future of radio.”

Personally, if I was him I’d worry that Spotify could integrate a teachable radio feature similar to Pandora into its product. While it might not be as accurate, Spotify could significantly reduce the need for users to also visit Pandora by augmenting its listening on demand service with a satisfactory personalized radio. That certainly seems easier than Pandora trying to secure the licenses to offer on-demand listening.

In addition to monetization, Conrad says Pandora is working on “how we make the service as ubiquitous as radio — in the home, the television, the living room, the bedroom, even embedded above the ice maker on your refrigerator.” Its most recent push to accomplish this is its expansion into the automobile. Conrad says this is a natural fit because Pandora is designed to be simple and not require constant interaction, similar to radio. This means people can use Pandora safely while driving.

Pandora has had an eventful second half of 2011. It IPO’d, trading at over $16 a share on its first day, and has stabilized around the $14.44 it’s at today. It announced a record $67 million in revenue for Q2 of the 2012 fiscal year. Studies show the majority of Pandora’s listening is now through mobile. It also released its HTML5 app, and dropped its 40-hour free listening cap to make sure users can hear as many songs, and advertisements, as they want.