Pandora acquires ‘key assets’ from Rdio, will launch on-demand streaming in 2016

The streaming music industry is about to lose a player and gain a platform. On Monday, Pandora announced plans to acquire “key assets” from on-demand streaming service Rdio, which is seeking bankruptcy protection and will wind down its current business.

The deal, for $75 million in cash, covers Rdio’s technology and intellecutal property, and Pandora says it will be offering jobs to many members of Rdio’s team. Pandora isn’t buying Rdio’s entire business for a couple of reasons: First, to launch an on-demand streaming service like Spotify or Apple Music, Pandora will have to make its own licensing deals with the record labels, because Rdio’s deals aren’t transferable. Second, Pandora executives explained in a Monday conference call that Rdio is financially “challenged,” and would have been a drain on Pandora.

So Pandora plans to build its own platform, expanding its current service of streaming radio stations that adjust to your tastes as you click a thumbs-up or thumbs-down button by each track. Last month Pandora acquired Ticketfly, which specializes in online ticket sales for small- and medium-sized venues and festivals. Together Ticketfly, the Rdio deal, and a recently inked deal with Sony/ATV Music Publishing will help Pandora speed up its plan to be a one-stop shop for music fans and artists alike. The Rdio deal will also let Pandora expand internationally, since Rdio already does business in more than 80 countries.

Pandora doesn’t have a firm timeline for launching an on-demand streaming service, estimating the end of 2016. Monday’s conference call also didn’t provide any details about how long the Rdio service will continue, or any plan to migrate Rdio customers to Pandora. Rdio CEO Anthony Bay will not be joining Pandora as part of this deal, so he can work on the process of winding down Rdio.

How the new Pandora will compete

One of Pandora’s key strengths, according to CEO Brian McAndrews, is music discovery. As the service learns your tastes, it can play you new music you might not hear elsewhere—CFO Mike Herring pointed out on the call that 80 percent of the artists on Pandora simply don’t get played on terrestrial radio. Rdio also aims to help users discover new music, by telling you when a band you like has a new recording, and helping surface artists, albums, and playlists that your friends are enjoying.

By combining Rdio’s tech with Pandora’s own recommendation engines, the company hopes to provide an easier experience for Pandora users interested in “stepping up” from streaming radio to on-demand music. Imagine subscribing to an on-demand service that already knows what you like, and can help you build out your personal library more quickly by recommending both music it knows you’ve enjoyed in the past, and similar sounds you might have never heard before.

Pandora is also positioning itself as an industry-friendly service that cares about the artists. It recently acquired Next Big Sound, a music analytics company that can give artists deeper insights into what their fans like and dislike. (This kind of data-driven approach is de rigueur in the streaming industry: Apple acquired Semetric, makers of the Musicmetric analytics service, in 2013, and Spotify snapped up audio analytics firm The Echo Nest in 2014.) Pandora also has its Artist Marketing Platform, a set of tools for artists to use to upload new music directly to Pandora and get data on who’s listening.

McAndrews says Pandora has paid out $1.5 billion in royalties since the start of its service, and notes that its listeners are largely converted from broadcast radio, which plays fewer artists and pays less in royalties. Pandora thinks that by giving artists a way to engage with fans directly—and helping promoters sell more tickets to live shows by Ticketfly—the company has the goodwill to negotiate the licensing deals it’ll need for an on-demand streaming service to go with its Internet radio offering.

For music fans like you and me, Pandora hopes to lure us in with the convenience of having a one-stop shop for “lean back” streaming stations, “you play the DJ” on-demand streaming, discovering new artists, and nabbing tickets to see them play. Pandora says it has no plans to halt the free, ad-supported streaming users are enjoying now, but it makes sense to let them upgrade to a premium service while keeping them on Pandora’s multi-tiered platform. “Why encourage them to go elsewhere,” says McAndrews, “when they can stay in Pandora and we can provide a great experience for them.”