Pandora Media Inc (P) Tests ‘Promoted Stations’

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Pandora Media Inc (NYSE:P) is battling against perceptions that its business is running out of carpet. The firm’s been growing for several years, but it’s not managed to turn a consistent profit. With the rise of competitors from companies like Apple Inc. (NASDAQ:AAPL) with established user bases, Pandora needs to show it is set to establish itself or investors will get out. The first step is diversifying revenue, and that may be helped by a move the company announced today.

“Promoted stations” is an advertising idea that Pandora Media Inc (NYSE:P) hopes will bring major brands to its door. According to a release by the company about the new project, big companies like Yum! Brands, Inc. (NYSE:YUM), Taco Bell, Diageo plc (ADR) (NYSE:DEO) Crown Royal and Skechers USA Inc (NYSE:SKX) are helping the music streaming service to launch the ads.

Pandora bets on promoted stations

The “promoted stations” idea is a simple one. Companies pay Pandora Media Inc (NYSE:P) in order to broadcast their own ads and content on the company’s streaming service. The stations operated by the brands will appear in a “content you might like” window. The attempts to create a new way for companies to advertise on the music streaming service is just an experiment for the time being, and the details haven’t quite been worked out.

Ten brands are involved in the initiative thus far, and the stations operated by the brands will be targeted at around 10% of Pandora Media Inc (NYSE:P) listeners. The idea is being rolled out on Pandora today, but only that small proportion will be exposed to the new advertising format. The company is going to experiment with different ways to load the ads during the course of the experiment.

Traditional audio ads still account for an overwhelming amount of Pandora revenue, and the company’s investors have clearly gotten nervous about that imbalance in recent weeks. The company has not, however, decided how to price the new advertising medium. That will likely depend on the way that users interact with the experimental attempts being focused on right now.

Pandora prospects shrink as growth stalls

The most recent earnings report from Pandora Media Inc (NYSE:P) showed off one number that disappointed investors. Apparently the number of people listening to the music streaming service is no longer growing. The first quarter of 2014 was the first time that investors have seen growth in user base stall, and the company’s stock lost a chunk of value as a result.

With a relatively small user base and growing competition Pandora Media Inc (NYSE:P) must demonstrate that it can keep people listening, and increase the amount of money it takes from them. The company did not make a profit in 2013, and its outlook for 2014 doesn’t seem that positive on the back of the fourth quarter.

Other tech companies have turned their prospects around by developing new types of advertising, but more again have fallen into obscurity with their user numbers. The company’s precarious earnings position makes Pandora Media Inc (NYSE:P) a stock for the value investor to stay away from, though a risk tolerant growth investor might see some potential in the $5 billion company.

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