We contracted the consulting company, Capgemini, to help us develop some ideas that would turn our revenues into profits. We are all cognizant of the fact that while our customer base is growing rapidly, we are not profitable. Please find this memo as my recommendation regarding future actions of our company.
First and foremost, I agree with the consultants that we need to double our advertising since among our competitor, our advertising rate is the lowest. This will allow us to double the advertising revenue. Advertising has always been the most significant revenue source for Pandora and it is only logical to capitalize on this idea. It seams as though charging customers a fee for our services with a built-in benefit of avoiding advertisements will also bring us the much needed revenue. The consultants encourage Pandora to fight the royalty structure and advocate for a less burdensome model with a level laying field between traditional AM/FM radio and Internet and satellite alternatives. Since royalty expense is our largest variable cost, deducing it will yield greater revenue return given the large customer base.
Secondly, I have always been a supporter of artists, especially musicians. I like the 'open mic' and 'battle of the bands' idea that the consultants presented. I would only suggest to limit this option to artists already featured on Pandora. This will ensure that the songs that appear in the contest can be accessed by our customers. I would propose to implement my idea of charging artists for the opportunity to start up their career by utilizing and reaching out to Pandora's customers. Our team works very hard and spends significant time decoding the music and assigning it the musical DNA. I believe that a nominal fee between $100-$200, depending on the number of tracks on the CD, requested from a new artist would be a fair price, especially when compared with the $350,000 charged by the labels. This option would bring us anywhere between $1,560,000 and $3,120,000 based on a conservative number of 300 CDs received from new artists each week (300 x 52 weeks in the year x $ fee per CD). Furthermore, we could incorporate the artists social media sites and the chat function discussed by the consultants into their standard information displayed when Pandora plays their song. This would promote the artist and help start their career.
Last but not least, we need to make our service more accessible to our users. I second consultants recommendation that we need to work with system-on-chip manufacturers to embed Pandora technologies on the chips they sell to consumer electronics manufacturers like Samsung, Sony, Nokia and Panasonic to bridge the online and offline experience. We also need to expand to portable radio devices. Furthermore, I am truly convinced that automating a portion of our genome development process would yield significant benefits not only to our company but mostly to our customers. We would be able to encode the music much faster and therefore increase our music database substantially. We would be able to offer much more versatile musical menu that could appeal to a broader customer base. This option, while not necessarily needed to be applied in the short term, may be a good starting point aiming at increasing our operating effectiveness and growing our customer base. I find it particularly intriguing when contemplating the topic of globalization raised by the consulting team. I can only imagine the possibilities and the amount of work required to decode the music made by artists from other countries. While we do have some of them represented in our musical library the potential here is enormous!
We have created a great company that has a lot of potential and satisfies the musical needs of the customers. I am convinced that by implementing a few ideas described above we can grow as a company, be profitable and sustainable, as well as continue to increase our customer base by offering a more customized and versatile musical experience.
Best regards,
MKO
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