3 Things You Didn't Know about Pandora Media

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Over the past year, shares of Pandora Media have dazzled investors. As revenue has grown, so too has Mr. Market's enthusiasm for the now $5.29 billion market cap provider of Internet radio. Pandora shares have risen a remarkable 271.3% to their 52-week high of $27.96. In celebration of the company's triumphs, and in lieu of its challenges, now might be a time to look back and examine some interesting things you may not know about it.

The music's in your genes... sort of
It's easy to think of music as just music, but the founders of the predecessor to Pandora, Savage Beast Technologies, imagined it as something bigger. Prior to starting Pandora, its founders started work on what they called the Music Genome Project.

At its core, the Music Genome Project was based on the concept that musical preferences could be broken down into mathematical elements. To illustrate this, its founders took various factors in a song, such as the gender of the lead vocalist and the impact of the sound of any electric guitar present, and put them all into an algorithm.

After conducting significant research, the founders determined that there were approximately 450 distinct attributes, or "genes", that could be used to describe a song. By using these findings, the company organizes its songs by using historical song choices from individual users.

Pandora's not going global anytime soon!
Not much has changed since the days of Alexander the Great. You might say that Alexander was the first conqueror to expand his empire across several countries, a feat that has been attempted many times in the ensuing centuries but with mixed results. This ambition continues today, but in a less bloody way.

After gaining tremendous market share domestically, most companies hope to expand internationally and replicate their success. However, this might be too much to ask for Pandora. The reason boils down not to the company's fundamentals, nor does it boil down to the ambition of management. Rather, it's built into the law.

According to the terms of the Digital Millennium Copyright Act, it's hard for Pandora to expand overseas because of the possibility of the infringement of copyrights. In fact, the only two countries outside of the United States that Pandora has been able to spread to without being in violation of the Act are Australia and New Zealand.

Pandora likely wouldn't be here today if it weren't for Congress
Contrary to the generalization that Congress doesn't do anything, Pandora's existence is proof that, at least at one time, it did. In 2007, a debate concerning royalties paid to record companies reached its conclusion when a federal court ruled that Internet-based providers of radio services would have to pay around double the rate paid by satellite providers.

In response, Pandora began negotiating with SoundExchange, the non-profit that pushed the royalty issue and which has the authority to dictate royalties. However, as the 2009 deadline approached, and as Pandora executives warned that a failure to achieve a favorable deal would mean the end for the company, Congress passed a bill that allowed the two entities to continue their negotiations into 2009. In July of that year, the parties agreed to revised royalty rates that, while still high, allowed management to continue operating the company.

Foolish takeaway
As we can see, Pandora is an interesting company. Irrespective of whether it's overvalued or undervalued, it's always nice to take a step back and learn how and why a company is the way it is. The hard truth is that nobody knows what Pandora will become as time progresses.

Judging by the looks of things, management has historically been very dedicated to their cause and hasn't made too many mistakes (or else the company wouldn't be here). Moving forward, it will be interesting to see what Pandora does and how its business evolves or devolves in the face of competition, political threats and opportunities, and shifts in consumer tastes.

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The article 3 Things You Didn't Know about Pandora Media originally appeared on Fool.com.

Daniel Jones has no position in any stocks mentioned. The Motley Fool recommends Pandora Media. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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