Despite a Surge In Paying Subscribers, Pandora Cancels the 40-Hour Listening Cap…

Here’s more proof that Pandora could be profitable, if only it wanted to be profitable.

Effective immediately, Pandora is now removing its 40-hour, free monthly listening cap on mobile listeners.  The caps were implemented a few months ago, but Pandora says mobile advertising is getting better, and levers like increased skip restrictions will keep more people on the service.

Users won’t be forced to pay for extra time anymore, which means that Pandora can get back to a business model that revolves around free, ad-supported listening.

“We’re pleased to once again maximize free listening for everyone on Pandora,” founder Tim Westergren declared.

The caps weren’t drastic, and highly-affordable.  After hitting the far-flung 40-mark, users were given a choice: pay 99-cents to listen to unlimited hours for the remainder of the month, or upgrade to a modest, Pandora One premium plan ($3.99 a month, or $36 a year).

At the time, Pandora founder Tim Westergren apologized to power-users for the shift, but explained that heavy, imposing royalties were the reason for the drastic move.  Yet right after the caps were implemented, something unbelievably strange occured: people started paying the modest charges.

So why cancel the cap after a few, highly-successful months?  The only problem is that some of these power-users abandoned Pandora’s service, and switched to any number of competitors (including Spotify).  Which means that Pandora gained fewer total users as a result, and lost otherwise happy, non-paying users.

Smaller, subscription-based audiences generate better revenue, improve the chances of profitability, and generate more royalties for artists.  But that approach revolves around a smaller group of paying users, and ultimately contadicts Pandora’s claims that it can’t operate profitably at the current royalty rates.

Fast-forward to the present, and quarterly losses are mounting: during the latest period, net losses widened 43.8 percent to $7.8 milion, while top-line revenues continued to boom (up 60 percent to $162 million).

All of which bolsters the claim that without a subsidy in the form of lower artist royalties, Pandora simply can’t survive.  Or at least, survive with the business model that Pandora prefers.

9 Responses

  1. Yves Villeneuve

    Obviously a response to the upcoming iTunes Radio threat. At least iTunes Radio likely put a muzzle on Pandora’s cries of “poor me”. I don’t think American Congress will want to make Apple richer by reducing artist/label and songwriter/publisher performance royalties.

    • Yves Villeneuve

      Westergren and Company need just a little more time to unload the rest of their Pandora holdings, so the casual investor should not sell their stock just yet.

    • le caniche français

      See Apple doesn’t NEED the royalty break, and they are getting better bigger advertisers!

    • Casey

      Apple has their own direct licensing. What congress does for sound exchange royalties won’t impact Apple.

      • Yves Villeneuve

        Naturally, if Congress lowers the SoundExchange rate it puts downward pressure on negotiated direct licensing rates.

        The current SoundExchange rate was the basis of negotiations for Apple’s negotiated deal and resulted not much higher than the SE rate in exchange for more user flexibility.

        Those are the facts, Casey. Your spin was expected since the article involved radio.

      • Ted Beneke

        Pandora can already make it’s own direct licensing deals just like Apple did — they can do that right now. They don’t want that because they can’t afford market rates which means this is a subsidy.

  2. Visitor

    How much do the top 5 Pandora executives make per month?

  3. Jeff Robinson

    And yet, Pandora is still one of the shittier stocks too:

    Two years after it’s debut and the price is almost where it opened.

  4. Adam

    Westergen is a moron. What business person would do something like this? Minor fees are going to add a lot of revenue to artists and Pandora. The data shows people are willing to pay. iTunes radio will feature HEAVY advertisements for non paying subscribers. All this will do is make people sign up for the non advertising mode of iTunes radio and pay for it, while others slowly stop using pandora. If you are already paying for pandora, why would you switch to iTunes radio? Plus, they are very different businesses who stream music very differently. God I’m just shaking my head in disbelief at this stupid move. Every time something like this happens I feel more and more that CD’s and records are going to continue their comeback rather than die out… who the hell wants to support any of these idiotic companies anyway? I’ve been happy enought with spotify to augment my CD and record collection… and I pay for it. I hate the ads.