Pandora 2012 Annual Report Download - page 15

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Table of Contents
We offer our service to listeners at no cost and we generate revenue primarily from advertising. We also offer a subscription service to listeners.
Our Service
Unlike traditional radio stations that broadcast the same content at the same time to all of their listeners, we enable each of our listeners to create up to
100 personalized stations. The Music Genome Project and our playlist generating algorithms power our ability to predict listener music preferences, play
music content suited to the tastes of each individual listener and introduce listeners to music they will love. When a listener enters a single song, artist or genre
to start a station – a process we call seeding – the Pandora service instantly generates a station that plays music we think that listener will enjoy. Based on
listener reactions to the songs we pick, we further tailor the station to match the listener's preferences.
We currently provide the Pandora service through two models:
• Free Service. Our free service is advertising-based and allows listeners access to our music and comedy catalogs and personalized playlist
generating system for free across all of our delivery platforms. In September 2011, we effectively eliminated the 40 hour per month listening cap
on desktop and laptop computers by increasing the cap to 320 hours of listening per month, which almost none of our listeners exceed. We have
the right to assess a $0.99 fee to listeners who exceed the new cap, but this has not generated, and is not expected to generate any meaningful
revenue. Listeners on other platforms have access to unlimited hours of free music and comedy.
• Pandora One. Our listeners can subscribe to Pandora One for $36 a year or, on some devices, $4 per month. Pandora One works with all of our
delivery platforms and currently eliminates all external advertising from any device used to access our service. Pandora One allows unlimited
listening time and provides access to higher quality 192 kbps audio on supported devices. In each of fiscal 2011 and 2012, subscription services
and other revenue accounted for approximately 13% of our total revenue.
Beyond song delivery, listeners can discover more about the music they hear by researching song lyrics, reading the history of their favorite artists,
viewing artist photos and buying albums and songs from Amazon or iTunes. Our service also incorporates community social networking features. Listeners
can create and customize personal listener profile pages to connect with other listeners. Our music feed feature enables a real-time, centralized stream for
listeners to view the music that their social connections are experiencing and to provide and receive recommendations for songs, albums and artists. Listeners
can also share their stations across other social media outlets and through email by using our share feature or by distributing our individualized station URLs.
In addition, our website is integrated with Facebook's instant personalization capability, allowing our listeners to share their stations and music preferences
with their Facebook friends and enabling us to make additional music recommendations. In September 2011, we redesigned our website to incorporate a faster
software platform, expand our social features and streamline our station creation features and the navigation of our interface.
Distribution
We make the Pandora service available through a variety of distribution channels. In addition to streaming our service to traditional computers, we have
developed Pandora mobile device applications or "apps" for devices such as Android phones, Blackberry phones and the iPhone, and we distribute those
mobile apps free to listeners via smartphone app stores. In addition, we have partnered with the makers of over 500 consumer electronics devices, including
Alpine, Panasonic, Pioneer, Samsung and Sony. These third-party distribution partners incorporate our applications into aftermarket and factory-installed
automobile entertainment consoles and other consumer electronics devices targeted for use in the home and on the go. We have also developed relationships
with major automobile manufacturers, including Ford, Lincoln, Mercedes-Benz, MINI, BMW, Hyundai, Scion, Toyota, Lexus, Honda, GMC, Chevrolet and
Buick, and with suppliers to major automobile manufacturers, to integrate the Pandora service into current and future automotive sound systems. Additionally,
Cadillac, Acura and Kia have publicly announced their plans for future Pandora integrations. Under the arrangements, we receive no financial compensation
and recognize no revenue from these distribution partners.
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