Pandora Limits Free Listening. Paying Subscribers Jump 114%…

So why isn’t Pandora doing more stuff like this, instead of begging Congress for breaks?  After recently capping free listening hours on the heaviest mobile users to reduce royalties, something strange happened: listeners actually started paying.

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In fact, Pandora gained more than 700,000 new paying subscribers in just three months.  Instead of $0, these people are now paying $36 a year, or $3.99 a month.  That is more than all of the subscriber gains over the past year, and brings the total number of Pandora One subscribers to 2.5 million.

All of which raises the question: what if Pandora asked more users to pay, or, forced more users to pay?

It turns out that’s not a direction the company wants to go.  This is what Pandora CEO Joe Kennedy told investors on that very question:

“We don’t look at Pandora One purely as a subscription service but rather as a paid option for our users that’s almost like a feature addition instead of a business line.”

So let’s review: 

(1) Pandora is the largest internet radio service in the world, though most listen for free.  (The company streamed a record 4.2 billion hours in the last quarter alone, which accounts for an estimated 7.83 percent of all radio listening.)

(2) Pandora doesn’t want to shift more aggressively towards paying subscribers, even though many of these listeners would be willing to pay (though many would also leave).

(3) More paying subscribers could help Pandora restructure their business model, and reach profitability.

(4) Pandora’s existing business model isn’t working, and the company isn’t making enough money to cover artist royalties.

(5) Pandora is still focusing on lowering streaming royalties, and demanding that Congress force these lowered rates.  They are also asking artists to sign letters supporting lowered payments.

All of which also means:

(6) Artists, not listeners or Pandora executives, are the ones ultimately subsidizing and paying for Pandora’s billions of free listening hours and refusal to restructure.

Pandora lost $28.6 million last quarter.  Pandora executives cashed out $7.3 million in stock in that three-month period alone.

Any Questions?

16 Responses

  1. hippydog

    one question..
    I have yet to figure out why advertising doesnt work for any of these streaming services.. If you cant get paid subscribers, then it seems its the only other option.. Asking the artists to take the cut in pay is just stupid..
    Having said that, i am still wishing pandora can pull something together, as I do like the “idea of it”.. IE: a completely different way to curate and discover new songs.. so im still rooting for them 🙂

    • Visitor

      I will help you figure it out:
      The value of advertising is based on who sees it.
      Smart people (read, monied consumers) Do not want advertising because it is insulting and intrusive. Therefore the only people reached by advertisers these days are people with no money to spend. Thus low rates. Top that with the fact that music players are not something you commonly look at while listening to and regular audio ads ruin the listening experience…..
      that is why advertising will never finance services like this. subscription is the only hope.

      Do you understand now?

      • Guest

        “advertising will never finance services like this. subscription is the only hope.”
        Advertising has been financing regular broadcast radio for a long time.

        • Visitor

          Advertising on radio is a completely different thing. Absolutely no comparison.

      • hippydog

        sorry, but stating your personal opinion in answer to my question doesnt “answer” anything. matter of FACT, what you stated is completely wrong.

    • brian mellblom

      If Pandora can’t make money playing music, then why don’t they just sell T-shirts?

  2. digilegal

    The conclusion that artists are subsidizing this is incorrect.
    Pandora pays the same statutory royalty whether the end user is paying or not.
    You must know this already, Paul. Do you just write such things to stoke controversy?

    • Casey

      Depends on how you look at it.
      Pandora execs are now multi-millionaires, many times over. The model of massive free hours and endless losses while lobbying for lower royalties is working very well for them.
      That’s not a judgment call, merely a read of how this business has been constructed, and sold to Wall Street.
      Users are enjoying a completely free service, most are not paying. Those that are are not paying too much.
      Artists and songwriters ultimately receive tiny royalties, and lowered royalties from both the publishing and recording ends (thanks to lawsuits and Congressional lobbying on the part of Pandora). They’re losing here; part of the reason is that Pandora doesn’t have a business model that works.

  3. FarePlay

    200m subscribers and 2.5m paid subscribers? JOKE. These guys are scared to death to force the paid model. Their entire play is based on showing big numbers to the VC community and future stockholders.
    The fact that musicians are sacrficed to support their fantasy is obscene. These are companies whose business models are based on unattainable goals at the expense of artists.

    • Faza (TCM)

      It probably doesn’t help that such companies are rarely predicated on a shared-profit model (normally known as a dividiend). If you check out Pandora’s latest 10-K (for the fiscal year ended 31 Jan 2013) you’ll find this juicy tidbit:
      “We have not declared or paid any cash dividends on our common stock and currently do not anticipate paying any cash dividends in the foreseeable future. Instead, we intend to retain all available funds and any future earnings for us in the operation and expansion of our business.”
      In other words: good luck ever seeing a dividend payout.
      The whole “business” idea behind Pandora – and way too many online companies – is akin to race-horse grooming: raise your share price so suckers start lining up to buy and the insiders can cash out (see Tim, the Million-dollar-a-month-man). It is the exact opposite of what capitalism is supposed to be: one big con job.
      It’s time we stopped talking about “investing” in these businesses. You’re not investing in anything when you buy Pandora shares, say. You’re gambling on finding a sucker who’ll take’em off your hands for more than you paid. You’d also better believe that when Spotify goes public, they’ll be doing the exact same thing.
      If you’re wondering why there’s not a single business in the digital music sphere (with the possible exception of Apple’s iTunes) that sounds even half-way sensible – this is the reason. If you’re looking to make a profit, you don’t go into patently stupid ventures like lobbying Congress to set prices the way you’d like them to until you’ve exhausted the more sensible options (like charging your customers).

      • Casey

        Apple didn’t pay a dividend for years, despite being extremely profitable.

        • Visitor

          Many hugely profitable companies (and virtually all mutual funds) don’t pay dividends… reinvesting profits is a common and arguably sensible practice. I almost feel like nominating the post you replied to as the most idiotic rant ever posted on DMN.

  4. btocher

    I’m sure Pandora would increase their income if they didn’t limit their service to three countries

  5. Adam

    “…what if Pandora asked more users to pay, or, forced more users to pay? It turns out that’s not a direction the company wants to go…”

    Which is exactly why the only direction this company will go is down the drain if they don’t change the attitude. I can’t imagine congress will actually lower rates for them, and they certainly shouldn’t. If the CEO’s hadn’t been paid, they would have been 33% more profitable, or more realistically, 33% less ridiculous. Personally its never been clearer to me when a company is taking advantage of musicians and is forced to be so damn transparent about it (albeit not on their own accord!) I think it is disgustingly irresponsible that Pandora won’t force or ask more people to pay. We can all afford a paltry $3.99/month. Especially people like me, who spent hundreds of dollars a month in the “old” system. Now I have to pay way less, and the best thing is I use that money to buy vintage records and high quality recordings on the side. People who really like music want to buy it. We want to own it and listen to it on nice speakers and high quality stereo equipment. We don’t want to stream it to some mediocre sounding device, but we do want to stream it when we are on the move with our phones. So if pandora had a better setup and offered a full offline mode with playlists, and allowed more user interaction, they would be more popular. I would pay $3.99 for Pandora if it did what I wanted. I want to choose what I’m listening to. Pandora is just glorified radio and they should realize that or change it up.

  6. thrushjz

    Yeah, let’s make the artists take more of a hit, as if most of us in this business called music aren’t making a living putting out music everybody wants, but no one wants to pay for already…

  7. Amy Engelhardt

    I’m SURE they’ll drop their suit to cut the already abysmal royalties they pay songwriters and artists in half. Why would they want to keep all of this money for themselves? Go, America!