Pandora 2016 Annual Report Download - page 27

We continue to build our sales capability to penetrate local advertising markets, which we view as a key challenge to
monetizing our listener hours, including listener hours on mobile and other connected devices. Our audio advertising capability
also places us in direct competition with terrestrial radio, as many advertisers that purchase audio ads focus their spending on
terrestrial radio stations who traditionally have strong connections with local advertisers. We cannot foresee whether we will be
able to continue to capture local and audio advertising revenue at the current rate of growth, which may have an adverse impact
on future revenue and income.
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We continue to work on initiatives that, if successfully implemented, would increase our number of listener hours on
mobile and other connected devices, including efforts to expand the reach of our service by making it available on an
increasing number of devices, such as smartphones and devices connected to or installed in automobiles. In order to effectively
monetize such increased listener hours, we must, among other things, convince advertisers to migrate spending to nascent
advertising markets, penetrate local advertising markets and develop compelling ad product solutions. We may not be able to
effectively monetize inventory generated by listeners using mobile and connected devices, or do so in a timeframe that supports
our business plans.
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Advertising spending is increasingly being placed through new data-driven channels, such as the programmatic buying
ecosystem, where mobile offerings are not as mature as their web-based equivalents. Because the substantial majority of our
listener hours occur on mobile devices, our growth prospects and revenue may be adversely affected if the advertising
ecosystem is slow to adopt data-driven mobile advertising offerings.
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As new advertising buying technologies, such as programmatic buying, develop around data-driven technologies and
advertising products, an increasing percentage of advertising spend is likely to shift to such channels and products. These data-
driven advertising products and programmatic buying technologies allow publishers to use data to target advertising toward
specific groups of consumers who are more likely to be interested in the advertising message delivered. These advertising
products and programmatic technologies are currently more developed in terms of ad technology and industry adoption on the
web than they are on mobile. Due to the fact that the substantial majority of our listener hours occur on mobile devices, our
ability to attract advertising spend, and ultimately our ad revenue, may be adversely affected by this shift. We have no reliable
way to predict how significantly or how quickly advertisers will shift buying to programmatic technologies and data-driven
advertising products.
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We have developed a data-driven, programmatic advertising capability for mobile in an effort to take advantage of this
trend. However, we only released this capability to the market in the second quarter of 2015, and we have no reliable way to
predict how significantly or how quickly advertisers will shift buying toward such data-driven ad products and programmatic
channels on mobile. If advertising spend continues to be reallocated to web-based programmatic technologies and mobile
programmatic adoption lags, our ability to grow revenue may be adversely affected.
Emerging industry trends in digital advertising measurement and pricing may pose challenges for our ability to forecast and
optimize our advertising inventory which may adversely impact our advertising revenue.
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The digital advertising marketplace is introducing new ways to measure and price advertising inventory. Specifically, the
Media Ratings Council released the Viewable Ad Impression Measurement Guidelines in 2014 pursuant to which web display
and web video advertising inventory will be transacted upon based on the number of “viewable” impressions delivered in
connection with an applicable advertising campaign (instead of the number of ads served by the applicable ad server). The
industry is in the early stages of this transition and we are still determining its potential impact on our inventory, operational
resources, pricing, and revenue. In addition, the current measurement solutions are limited to web display and web video
inventory and do not include mobile and audio inventory. Nonetheless, advertisers have been aggressively pushing to transact
advertising purchases for audio advertising and mobile placement on a measured “viewable” basis. As these trends in the
industry continue to evolve, our advertising revenue may be adversely affected by the availability, accuracy and utility of the
available analytics and measurement technologies.
Our failure to convince advertisers of the benefits of our service in the future could harm our business.
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For the twelve months ended December€31, 2015, we derived 80% of our revenue from the sale of advertising and
expect to continue to derive a substantial majority of our revenue from the sale of advertising in the future. Our ability to attract
and retain advertisers, and ultimately to sell our advertising inventory to generate advertising revenue, depends on a number of
factors, including:
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• increasing the number of listener hours, particularly within desired demographics;
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