As more people begin to use their mobile phones as the main source for listening to music, one music streaming company is seeing the negative effects due to the increase in mobile streaming. On February 27th, Pandora announced they will be capping the amount of music users are able to stream from their mobile devices. The change will effect listeners who have streamed 40 hours of music in a single month on a mobile devices (maybe I should dust off my iPod). Pandora expects fewer than 4% of listeners to hit the limit, but if that does occur they will have the option to pay 99 cents for unlimited streaming for the remainder of the month. Approximately 75% of Pandora users access the music through their mobile devices, which in turn the company has been unable to focus on the advertising of their mobile service compared to desktop service. To avoid the possibility of exceeding 40 hours of listening through mobile, users can still utilize unlimited free desktop streaming, pay the 99 cents as mentioned above, or subscribe to Pandora One for $3.99 per month for ad free listening.
Executives expect the cap to be temporary in order for Pandora to generate enough revenue through advertising or for Congress to pass legislation that would lower the royalty rates it pays per song. Every time Pandora streams a song, they are hit with a significant amount of money to cover for the royalty costs. Royalties have risen more than 25% over the last three years and are expected to rise another 16% over the next two years. Pandora generates its revenue through advertising, which has not grown at the same rates to keep up with the royalties.
In the competitive landscape, satellite radio provider SiriusXM charges a whopping $14.49 per month for Internet Radio which supports listening to channels on your computer or smartphone or you can add an extra $3.50 a month if you already have a SiriusXM subscription in your car. Another competitor, Spotify, has several pricing and service tiers similar to Pandora. For example, you are able to listen to Spotify radio version for free on your computer, buy an unlimited ad-free subscription for $4.99/month for your computer or listen to music on all devices for $9.99/month.
Do you think the cap will have an effect on promoting Pandora’s premium subscription service? Or do you feel that Pandora should reevaluate their premium options and strategy?