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Advertisers Love Pandora. Unfortunately the Market Has Its Doubts

Lexus launched a multi-faceted marketing campaign last month for its 2013 Lexus GS sport sedan that included the creation of a new GS-branded music station on Pandora highlighting artists, songs and albums that have revolutionized the music industry.

It is indicative of how highly brands, or at least Lexus, think of Pandora. Lexus’ multifaceted campaign is using nothing but the best and most advanced of ad technologies in this particular promotion. (For example, it is also creating an insert utilizing NFC technology for Wired, appearing in select copies of the April issue.)

Growing User Base

Lexus is not alone. The Phoenix Business Journal recently described the campaign of a local restaurant chain on Pandora. Ra Sushi, which has six Arizona locations, created a Ra station with pop, dance and hip-hop music—its primarily young customers' musical tastes. The station now has 65,000 listeners and the restaurant is creating a second Pandora station with the same goal.

Monthly Statistics

Pandora has announced it will begin publishing its monthly user statistics to give a better sense of its growth. In February its share of total U.S. radio listening was 5.74%, an increase from 2.90% at the same time last year. Total listener hours were 975 million, an increase of 101% from 483 million during the same time period last year. Active listeners reached 49 million, an increase of 57.5% from 31 million during the same time period last year.

These numbers were published as shareholders registered their disappointment in Pandora’s recent earnings, which included a wider-than-expected loss and higher than expected royalty fees for its music (via the Wall Street Journal) by causing its stock price to drop 24%.

A Faltering Model?

The upshot for advertisers is that Pandora’s model may not be sustainable in the long term. "We understand that monetization doesn't smoothly rise up-and-to-the-right," Citigroup analyst Mark Mahaney wrote in a client note. "But full-year flat monetization blows up the [Pandora] model. At least, near term."

Read MediaBuyerPlanner’s analysis of why Pandora is still a good bet for advertisers in the short term.

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