Breaking Down Pandora’s Entry Into Ticketing

How does a music streaming service add value to a ticketing company? Pandora aims to do for ticketing what it does for music: connect fans with artists.

By Glenn Peoples, Music Insights and Analytics at Pandora

Key takeaways:

· The acquisition creates an opportunity to sell incremental tickets by combining Pandora’s ability to finely target listeners with Ticketfly’s inventory of tickets.

· The goal is a win-win-win outcome for Pandora/Ticketfly, Ticketfly clients (venues and promoters) and touring artists.

Pandora was created to solve a problem with music streaming. Back in 2005, Internet radio didn’t learn about you and play the music you were likely to enjoy. Pandora found a solution. Over a decade later, Pandora has evolved into a straight-up music company with 10 years worth of listening data and a user base of over 78 million monthly unique listeners. Over the last couple years, it’s basically become a marketplace that connects artists and listeners. Now it has an opportunity to solve problems in the live music and ticketing spaces.

Now Pandora is in the ticketing business. Why get into that particular part of the live events business? Pandora believes Ticketfly provides a natural way to expand its business and vice versa. The data that fuels music discovery can also help create concert recommendations and drive ticket sales. Agents and venues can benefit from the Pandora’s insights into listeners and markets. Ultimately, there exists an opportunity to improve the way people find out about concerts and buy tickets —and do it at scale.

In recent weeks I’ve been taking a deeper look at Pandora’s late-2015 acquisition of Ticketfly. I’ve talked to Pandora executives, heard how they approached the deal and sought to understand how the pieces fit together. What follows might be helpful to some readers. I’ve found some people don’t understand Pandora’s rationale and how the pieces will fit together. Here’s what I’ve come to understand.

There are clear financial reasons for the Ticketfly acquisition. Ticketing provides a means for Pandora to expand into the North American concert ticketing business. One can look at Live Nation’s financials to see the role ticketing can play in a larger company. The concert business tends to gets the attention while ticketing is the less visible, less understood profit center. Ticketing is a high-margin business, the largest contributor of operating margin and the main beneficiary of Live Nation’s nearly $5 billion concert promotion business. In 2015, Ticketmaster accounted for 59 percent of adjusted operating income (adjusted to eliminate items such as depreciation) but just 23 percent of revenue.

Working together, Pandora and Ticketfly want to combine “ticketing inventory supply with a massive and highly targetable audience,” as CEO Tim Westergren put it (Q2 2016 earnings call). Results thus far “have exceeded their bookings projections.” In the first half of 2016, Ticketfly had ticketing service revenue of $45 million on gross ticket sales of $330 million (excluding box office sales) and 7.5 million ticket sales. Efforts to work with Ticketfly clients and build integrated campaigns have found “considerable success,” according to Westergren.

Data is another foundational reason for the acquisition. The two companies’ data can help provide better concert recommendations using what Westergren calls “the large and growing corpus of original algorithms and data science research” (Q1 2016 earnings call). Data is the heart of Pandora, from the Music Genome Project to billions of data points on listeners’ music preferences. Now Pandora wants to combine listening and ticketing data to create deeper, more accurate customer profiles and recommend upcoming shows by favorite bands in their markets.

Incremental sales is another consideration. The integration of the ticketing service with the Pandora app will give Pandora the chance to create sales beyond what Ticketfly would have sold on its own. Each ticket purchase is preceded by the moment a consumer found out about a concert. The trick is not to waste that moment of discovery. Pandora wants to create both the discovery and an easy path to purchase.

Those are the broad reasons for merging Ticketfly into Pandora. What do the companies plan to do? There are a few major themes: reducing unsold ticket inventory, enabling and enhancing discovery, and helping mid-market artist and venues.

Live music and ticketing have a few nagging pain points in need of solutions. At the top of the list is under-capacity concerts. Some shows sell out and some do not. The longstanding statistic is 40 percent of all concert tickets go unsold. Year after year, market research, venues, promoters and management have said the primary reason tickets go unsold is a lack of awareness. Some number of fans simply don’t find out about a local concert by a favorite artist. They would have attended had they known. Some people find out too late — or not at all. Greater awareness should result in incremental ticket sales.

Pandora can raise awareness about upcoming concerts in a number of ways. Users can receive notifications about recommended local concerts and ticket on-sales through feed alerts, personalized emails and push notifications on mobile devices. It’s worth considering the value of push notifications specifically. Slack’s Noah Weiss (Head of Search, Learning, & Intelligence) recently called push notifications “about as powerful as technology gets” when they are timely, personal and actionable. Pandora’s push notifications will meet these criteria. Pandora can “ping” users when concerts are announced and tickets go on sale. The “music graph,” the data on listeners’ musical tastes, allows notifications to be personalized. And pings will be actionable because they’ll guide users to ticket purchase opportunities.

An acquisition should result in something—a new product, a product feature, a new service—that wouldn’t exist had the companies not merged. In this case, a post-acquisition product feature will ease the friction in the ticket-buying process. Later this year, the Pandora app will include an integration with Ticketfly so a user can purchase tickets within the app with a tap of a button. (Concerts ticketed by other companies will still be recommended and a purchase link will be provided.)

Related to awareness is discovery, another major theme. Discovery matters in digital music because services have the ability to surface music in ways that didn’t exist 20 years ago. Today, music is personalized. People don’t have to spend time searching through catalogs in the millions of songs. They get help sifting through the hundreds and thousands of new releases each week. Services know a listener’s favorite songs and can recommend similar music. Discovery works for live events, too. Pandora plans to use its music graph to employ discovery of live events the same way it fuels discovery of music.

Early ticket sales show the promise of solving the awareness and discovery problems. Pandora has run hundreds of campaigns to promote concerts and festivals in the Ticketfly network. Here are a few examples. For a concert by EDM artist Flume in Queens, New York, Pandora sold 62 percent of all pre-sale tickets and the combination of Pandora and Ticketfly accounted for 90 percent of pre-sale tickets. For LA-based rock/R&B band Fitz and the Tantrums, Pandora sold 3 percent of the tour’s tickets during a 2-day pre-sale window. A 5-day campaign and a 12-hour pre-sale window for Icelandic rock band Kaleo accounted for 4 percent of the tour’s tickets. The common threads in these campaigns are (a) higher-than-normal click-through-rates on emails and (b) artist audio messages that targeted the band’s fans in those markets. (Pandora can also create a promotion for a venue or promoter that’s not a Ticketfly client.)

Changes in music discovery have had a palpable impact on live music. Last year’s top 100 tours in the U.S. had about a 45 percent share of the concert business, according to Pandora’s analysis of Pollstar data. But back in 2000, the top 100 tours owned 88 percent of the concert business. This trend reflects the change in how consumers spend money on concerts and who they’re seeing. Mid-tier artists, Pandora’s sweet spot, have taken a big chunk of the market share away from touring superstars. This trend in live music mirrors the way digital distribution has changed recorded music sales. As the number of new albums exploded (over 105,000 new albums were released in 2008), consumers were able to choose from a larger selection of music. Artists that couldn’t get CD shelf space at retail were able to reach fans through downloads and streaming. As a result, consumers purchased more music by mid-tier artists and album sales became less hit-heavy. The same thing has happened in the concert space.

Some of the shift away from top 100 tours can be attributed to the festivals that have appeared since 2000 and are not included in the Pollstar data: among the many are Bonnaroo in Middle Tennessee, Lollapalooza in Chicago, Coachella in Southern California, The Hangout Festival at Gulf Shores, Alabama, and major EDM festivals such as Electric Daisy Carnival, TomorrowWorld and Electric Zoo. However, festivals are filled with mid-tier and indie label bands that reside far outside the top 100 tours. For every superstar artist headlining a festival there are a dozen or two lesser-known, mid-market artists with considerable listener bases on Pandora.

Another pain point is finding markets, venues and (for venues) artists with the most potential. Pandora wants to use its music graph to reduce the risk involved in booking shows and routing tours. A venue needs to know which artists to book and for how many nights. If an artist plays the right markets, there’s likely to be fewer unsold tickets. But gauging a market’s viability requires knowledge and tools an artist may not have. For artists and agents, Pandora will help reduce inherent uncertainty by providing the tools to help choose the markets with the most potential.

That’s the body of rationale behind the Ticketfly acquisition. There’s a pure business opportunity. There’s an opportunity to alleviate long-standing pain points in the concert business. For the industry at large, the larger opportunity is that Pandora becomes additive to the live music market by creating more awareness, reducing unfilled capacity, selling tickets faster and easier than before, and incentivizing artists to tour farther and more often. If those things happen, Pandora will grow the concert industry pie rather than change the size of its slices.