Peter Kafka

Recent Posts by Peter Kafka

Meet Brian McAndrews, Pandora’s $400 Million CEO

New Pandora CEO Brian McAndrews is having a pretty good first day on the job.

Last night, the Internet radio service announced that it had hired the digital ad veteran to replace Joe Kennedy, who announced he was leaving back in March. Today, Pandora investors have responded by pushing the stock up by $2.50 a share — a jump of nearly 12 percent.

That means they think the company is now worth more than $400 million more than it was before McAndrews came on board — even as Apple preps its iTunes Radio service, which will compete directly with Pandora for listeners and ad dollars, for launch next week.

If those stock gains hold, that means Pandora got McAndrews at a bargain price. They’re paying him a base salary of $500,000 a year, with the chance to double that via bonuses. And if he sticks around, he can pick up another two million shares via options and restricted stock grants.

McAndrews’s hire is a clear message that Pandora and its board realize that it has morphed from tech company to ad company. McAndrews is best known for building up Seattle-based marketing agency Avenue A into aQuantive, the digital marketer/ad tech company that Microsoft bought for $6.3 billion in 2007, in the wake of Google’s DoubleClick deal.

Microsoft ended up writing off almost all of that acquisition last year, but when I talk to ad industry folks about that failed deal, the arrows are always pointed at Microsoft CEO Steve Ballmer, not the aQuantive team.

What McAndrews doesn’t have, by his own admission, is any real experience in the music industry. Which means he’s going to have to rely on other Pandora execs to help him get up to speed on the company’s ongoing battle to lower its licensing fees, which it has complained about for years.

Here’s an edited version of a brief Q&A I conducted with McAndrews this morning:

Peter Kafka: Investors love the news that you’ve come aboard. Does that surprise you?

Brian McAndrews: I generally don’t comment on the market, because I think the market is a great long-term measure of a company’s value, and shorter term, it’s hard to evaluate exactly what’s going on. Obviously, in general the market is reflecting what the team before me has built.

What’s your top priority at Pandora? Increasing your top line through ad sales? Or reducing your licensing fees?

It’s really to continue keeping us on the great growth trajectory we’re on. That clearly includes continuing to increase and improve our monetization and, obviously, advertising is a key part of that. On the royalty side, I have a lot to learn in that area. Obviously, it’s an important component of our cost structure, but there’s no immediate steps to be taken on that, other than for me to learn a lot.

If you can’t reduce your licensing rates, can you succeed with your current cost structure?

It’s a hypothetical that I don’t have to have an exact answer to, other than to say that I joined the company with confidence that it can succeed under a range of scenarios.

Any thoughts about the way Pandora has grappled with mobile? It has been their primary growth engine, but, like other media companies, Pandora’s mobile ads make less money for them than desktop ads.

My sense from afar is they’ve made great progress, and are one of the leaders in that space. Mobile is still early, but I think Pandora has done better than a lot of companies — better than most companies — in terms of monetizing. One advantage Pandora has is that it’s an audio experience, and a lot of the advertising can be audio advertising, which is a tried-and-true and proven model for years and years in radio. I think some of the larger challenges in mobile has been figuring out banner ads on a smaller screen.

You were part of the team that sold aQuantive, and last year Microsoft ended up writing off that deal. What happened?

I’m incredibly proud of what we built at aQuantive, and how successful the company was when we sold to Microsoft. Obviously, I can’t speak to Microsoft’s decisions, but I can tell you aQuantive, which eventually became the advertiser and publisher solutions group at Microsoft, [was] a great organization, with a lot of great people. And much of the technology they acquired continues to run their large advertising network today.

I think Microsoft made strategic decisions, and other decisions, organizationally, that they felt served their purposes, that may not have served aQuantive as well as I would have liked.

Latest Video

View all videos »

Search »

Another gadget you don’t really need. Will not work once you get it home. New model out in 4 weeks. Battery life is too short to be of any use.

— From the fact sheet for a fake product entitled Useless Plasticbox 1.2 (an actual empty plastic box) placed in L.A.-area Best Buy stores by an artist called Plastic Jesus