Citing Burdensome Royalty Costs, Pandora Caps Its Listening Hours…

This may have less to do with payments than it does politics.  As of today, Pandora is now capping the number of monthly free hours on its mobile apps to 40, according to word from founder Tim Westergren.  “Limiting listening is a very unusual thing to do, and very contrary to our mission so we wanted to share a quick explanation,” Westergren wrote listeners.

“Pandora’s per-track royalty rates have increased more than 25 percent over the last 3 years, including 9 percent in 2013 alone and are scheduled to increase an additional 16 percent over the next two years.”

The reality is that very few will reach that limit, and those that do are certified power users with considerable loyalty.  Indeed, Westergren estimated that just 4 percent of active users would hit the cap on any given month.  Which is bigger than nothing, but nothing to really worry about.  “Most of you reading this will never hit the limit,” Westergren admitted.  “For perspective, the average listener spends approximately 20 hours listening to Pandora across all devices in any given month.”

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Sadly, those power-users are unlikely to upgrade, at least based on past learning.  The reason, as Pandora has realized, is that the free ride starts over again in a few days.  And for those that can’t wait, there’s a free something else just an app away.

But if so few are hitting the cap in the first place, why institute a cap at all?  On that topic, Pandora CEO Joe Kennedy offered some rare plainspeak to that other rag, Billboard.

“It’s proven to be a smart lever to impact royalty costs,” Kennedy said.

9 Responses

  1. Casey

    This will hurt their growth, but it is definitely a good move from a financial standpoint. The mobile listeners lose money. Mobile ads simply are not worth enough. Desktop ads on the otherhand, are worth signficantly more and make Pandora a decent margin.

  2. R.P.

    or maybe something to do with the recent expenses these execs have incurred… and their new standards of living -_-

  3. Tim

    This is purely political. Rather than increase the ads by any margin (which probably wouldn’t be noticed by 99% of users), they publicly issue a cap, which does nothing to help their failed business model. The reason: to make sure fans rally against the music industry.

    • Casey

      Wouldn’t work. Pandora already has unsold ad inventory. They can’t sell more ads if advertisers are not willing to fill the existing inventory. Advertisers have been slow to embrace the mobile market. Until that changes, free mobile Pandora is a loss leader.

      And they actually announced it pretty quietly. It was one of the more subdued posts made by Tim that I have seen so far regarding royalties. Implimenting a cap is nothing to brag about. It brings bad publicity which help their competitors.

  4. Big Swifty

    Instead of capping, shouldn’t a streaming service offer different user plans like voice/data phone services?

    Instead of talking averages shouldn’t they be talking about indidualization?

    For example a customer should be able to choose

    – pay per song played

    -10-20 songs a month in rotation for a set fee

    – unlimited songs played but only played once a month

    – unlimited songs played unlimited amount of times

    Each of these plans would require licensing negotiations but I am sure there are clever accountants out there who could balance the books so that the copyright holders, PROs and streaming business owners would be satisfied.

  5. LanceASchart

    Pandora is capping”free” listening, but, at least they’re planning to pay more/higher musicians’ royalties…