Pandora CTO Tom Conrad is remarkably calm for someone who has two of the largest tech companies in the world gunning for him.
He joined the Internet streaming music service in 2004 and helped create its namesake app, which has 58.3 million people listening in every month.
The popularity of Internet music isn't lost on Apple or Microsoft. Apple bought Lala, a Pandora competitor, a couple of years ago, and is rumored to be adding music streaming to iTunes any day now.
And Microsoft has introduced Xbox Music, a Pandora-like service that's built into new Windows PCs, phones, and tablets. Pandora shares dipped after the announcement.
Why isn't Conrad worried?
He professes ignorance about Apple's plans. But he actually worked for Apple early in his career, building key features of the Mac OS. (Spring-loaded folders? He's got a patent for that.) And Pandora is a hugely important iPhone app—part of the ecosystem that makes Apple's smartphones so hot.
Microsoft has recognized that, giving Windows Phone 8 users a free year of Pandora One, the ad-free premium subscription that normally goes for $36.
Meanwhile, Conrad's team keeps improving the product—with its latest release, perhaps its biggest update ever, Pandora 4.0.
The new version adds more social features, like following and profiles. Subtle design changes make the app feel faster and fresher.
A bigger issue for Pandora is the regulatory structure under which it operates. Internet radio services get to avoid wrangling with labels over licenses by paying set fees. But regulators have made those prices much higher for Internet radio than for other audio broadcasters. In 2011, the streaming radio service paid over 50% of its revenues out as performance royalties, while SiriusXM paid less than 10%. So it's supporting a bill called the Internet Radio Fairness Act which would reform that pricing. Record labels are fighting it, naturally.
Through it all, Conrad exudes a calm confidence about Pandora's future.
The following is a lightly edited transcript of the conversation we had with Conrad.
Business Insider: The Wall Street Journal and Bloomberg both reported last week that Apple was in talks with record labels to create what they called a "Pandora killer." What do you think about those reports?
Tom Conrad: I don't know anything about what Apple's doing, so i can't speculate on that.
Pandora has faced competition from the first days of the service, all the way back in 2005, when we launched and Microsoft, Yahoo, and AOL were the biggest Internet radio players. Over the years we competed with MySpace Music, too.
Through it all we've managed to stick with over 70% of all internet radio listeners. We've just announced that there are 175 million registered Pandora listeners.
But my sense about Apple entering streaming radio is that Pandora will continue to do the same things we've done all these years and the rest will sort itself out.
BI: What are the odds of making headway with the labels over royalties? Many speculate that this is what is keeping the company's valuation down.
TC: What we're focused on with respect to the licensing dimension is creating a level playing field so we're held to the same standards as satellite radio and all other forms of digital radio.
That's why the Internet Radio Fairness Act is so important to us. We're really concerned with this kind of arcane U.S. copyright process. We've built a big successful business that continues to grow and we'll fight for equality and fairness on the licensing front. But the company's success isn't predicated on those changes.
BI: There's a huge opportunity in the proliferation of mobile devices in growing economies. How can you get Pandora to those people?
TC: Pandora's international expansion is one of the things that's tied to licensing. We just recently announced an expansion into Australia and New Zealand, we're in beta there today, and will launch general availability in the coming months.
That's just one example of a region where we can negotiate to reasonable economic terms. We'll look to replicate that success in other countries over time.
BI: Who do you see as Pandora's biggest competition? What do you think of Xbox Music?
TC: I can say that generally I am not terribly competition-centric in my thinking of Pandora. We show up to work everyday with one goal, to make the best playlists in the world and get them in the hands of our listeners. With that focus, the competition sorts itself out.
If you look at how people consume music in the U.S., 80% of all music listening in the country is radio and Pandora is about 6% of that. The really big growth opportunity for us is taking on the mantle of being the future of radio and from that frame the competitors are traditional radio broadcasters.
In terms of Xbox Music, I haven't seen it. I've just read things, so I don't have a opinion about that.
BI: Where do you see Pandora in the next six months to a year?
TC: I'm excited about the huge investments we are making to ensure that the listening experience on Pandora is the best in the world. When listeners tune into a station we're focused on what songs we play and the order in which songs play, coupled with the familiarity and discovery that comes along with that. We think its important to pay attention to and improve how listening changes in a day and in a month. That's job No. 1 for us.
And we have some great stuff coming. I'm really excited about the job we're doing on the automotive front, when people buy a new car and bring it home, they can fully enjoy Pandora.
The last thing that's exciting for us is the release of Pandora 4.0. This is the first time we've had a consistent experience and amount of features across the Web, Android and iOS. This consistency is going to allow us to continue to enhance the experience on Pandora across those platforms. Now when we come up with a great new experience for the Pandora listener, we can roll that out across the platform. As a designer that's a huge upgrade from where we've been.
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