Pandora Media (NYSE: P) might be the world's leading music-streaming specialist, but that doesn't mean it can't capture the visual attention of its nearly 80 million active listeners as well.
Last week Pandora announced that its new Video Plus ad product is now available to all advertisers. Several leading brands, notably including T-Mobile US (NASDAQ: TMUS), have already incorporated the platform into their respective media campaigns.
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Perspective is in order
Pandora's second-quarter 2017 report, released in late July, represented a significant shift in focus for the music-streaming specialist. For one thing, Pandora announced the conclusion of a strategic review which not only culminated in a deal to sell its Ticketfly subsidiary for $200 million, but also resulted in a $480 million strategic investment in the company by its satellite-centric peer, Sirius XM Holdings (NASDAQ: SIRI).
Incidentally, Sirius XM announced the completion of that investment just last week. And now, flush with cash, Pandora has told investors it will use the funds to make "targeted investments and capitalize on opportunities to build on its position in the streaming radio business."
Pandora CFO Naveen Chopra further explained: "We have taken a number of steps to hone the company's strategy and position Pandora to continue to build audience and extend monetization through a combination of advertising and subscription revenue streams."
Video Plus, for its part, is an obvious extension of Pandora's efforts to foster the advertising part of that combination.
Here's how (and why) Video Plus works
In short, Pandora gets paid by Video Plus advertisers only when users watch a 15-second video ad. In exchange for watching the ad, those users can unlock features that are typically only available with a $4.99-per-month subscription to Pandora Plus, such as skipping more songs or replaying their favorite tracks.
So how do we know it actually works? According to a press release, Pandora started testing Video Plus around this time last year. Over the course of that testing, it found that most users who watched the ads were between 18 and 34 years old -- a coveted target group for advertisers -- and that those under 24 years old were three times as likely to opt in. What's more, to Pandora's benefit, the users who opted in listened 57% longer and used Pandora's "thumb" functionality 65% more.
"Video Plus boosts brand awareness, builds loyalty, captures views and promotes deeper interactions with listeners who are significantly more likely to take action," added Pandora chief revenue officer John Trimble.
But that's not to say everyone is completely convinced at this early stage. T-Mobile, in particular, seems cautiously optimistic.
"We're always looking for new and innovative tactics to reach and engage with consumers in relevant ways," said Kari Marshall, T-Mobile VP of media. "We're excited to test Video Plus to deliver our Un-carrier message to Pandora's very engaged user-base, and the meaningful brand connections we hope it drives as a result."
For now, Pandora Media investors will likely need to wait until the company's next quarterly report, in late October, for more color on whether Video Plus is holding its own on a larger scale. But if Pandora's new video ads prove effective, they could deliver meaningful contributions to both the top and bottom lines as more advertisers jump on board.
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Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Pandora Media. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.