With domestic profitability in reach, Pandora looks to expand internationally

Pandora (S P) conquered mobile, it’s been expanding its automotive integration, and it expects to be profitable in 2014. So where should the company go next? One answer could be: Abroad.
Pandora has been tight-lipped about its international plans, with executives saying in the past that it would focus on the U.S. market. But Pandora CEO Brian McAndrews gave some hints during Thursday’s earnings call that this may change, saying:

“It’s certainly something that we are long-term interested in exploring and investing in appropriately.”

McAndrews went on to emphasize that Pandora is primarily concentrating on the U.S. for near-term growth, and that there is “no specific timeline, no specific goal” in place for expanding abroad.
Asked about the company’s plans for expanding abroad, a company spokesperson told me:

“International expansion is certainly top of mind, but right now we cannot comment on a timeline for additional country launches. It is our sincere hope to someday be able to offer Pandora to billions of people worldwide.”

Pandora is hiring to expand beyond the U.S.

However, in recent weeks, Pandora has taken a number of steps that hint at a larger focus on international markets. First was the hire of its new chief strategy officer Sara Clemens, who joined the company in February, and whose Linkedin profile boasts “broad international experience in European, North American, LATAM, Middle East, China and Greater AsiaPac markets” as well as a strong experience in “international market expansion and operations.”
McAndrews mentioned Thursday that international expansion was one of the areas Clemens was tasked to explore, and her Linkedin profile also lists “international operations” as part of her responsibilities at Pandora.
It looks as if Clemes won’t be the only one doing that job. The company is also actively hiring a “head of international development,” who will be reporting to Clemens and is going to be responsible for “driving market expansion strategy and operational execution for Pandora.” From the job offer: 

“The role will require developing a deep understanding of international considerations, leading broad cross functional teams to analyze the required market entry efforts, and building and managing plans for achieving accelerated international scale. ”

Pandora’s local success, and its sole international outpost

Pandora’s business has primarily been a U.S. success story, which the company continued this week by announcing lower-than-expected losses and continued growth. Pandora now makes up for 9.1 percent of all U.S. radio listening hours, up from 8.1 percent a year ago.
Its users listened to 4.80 billion hours of music in Q1, and in March, it attracted 75.3 million active listeners. All of that resulted in $194.3 million in revenue for the quarter, up from $115 million a year ago. Pandora still incurred a net loss of $2 million in Q1, compared to $38.5 million a year ago, but the company expects to break even next quarter and to end the year profitable.
Pandora took a first step into foreign markets in late 2012, when it launched its service in Australia and New Zealand. The company began to sell advertising in Australia in December, and McAndrews said Thursday that the service now has “well over a million registered users” in both countries.

So where should Pandora go next?

The big question is: Where should Pandora look to for further international growth? One country that I have been hearing rumors about for some time is Japan. On the surface, this would make a lot of sense: Japan is well-known for being a mobile-first market, which lends itself well to Pandora’s mobile-centric approach. U.S. users are spending 96 percent of their listening time on Pandora on mobile devices, according to recent comScore numbers.
Adding to that is the unique opportunity of the Japanese music market. Japanese record companies have been fairly conservative in their licensing, and consumers listen to a lot more local fare there than they do in other international markets. All of that has resulted in a bit of a music services vacuum, with services like Spotify and Rdio still unavailable in the country.
The challenge for Pandora is that it has worked out a very specific model for operating in the U.S. The reason consumers can’t listen to whole albums or skip as many times as they want on Pandora is due to its licensing structure, which is based on a specific definition of what a so-called non-interactive web radio can and cannot do. Sticking to these rules allows Pandora to play any type of music without having to strike direct agreements with record companies, which would significantly raise its operating costs.
In theory, it should be able to replicate the same model in other markets, because that’s how traditional radio works around the world, but the proverbial devil is, as always, in the details. Even in the U.S., Pandora has found itself in continuous debates with rights holders — and one should expect the company to take a very close look at legal and licensing issues before it decides to enter any additional markets.