Pandora Just Killed Itself
Aside from the news that Apple
Pandora's music genome platform allows listeners to customize their music and has turned Pandora into a sticky service. The company has growth despite stiff competition from Spotify and Sirius XM
Royalty fees have eaten up a significant portion of potential profit Pandora, and these fees are expected to grow by an additional 9% next year. (Rates are up by 53% in the last 5 years.) Accordingly, Pandora's margins have been nowhere to be found, and management has had enough.
Looking to beef up the bottom line, the company has opted to raise the rate of its premium Pandora One platform. With Apple's possible entry into non-music content, now doesn't seem like the best time for Pandora to "turn up the volume" on its customers.
It's not just your standard increase. Pandora is jacking prices by 25%.
The price of Pandora One is going from $3.99 per month to $4.99 for new subscribers starting in May. The company said yearly subscribers will get a "discounted loyalty price" of $3.99 per month at renewal time, while current monthly subscribers will see no price changes.
Bulls will argue that Pandora has not raised rates for some time. This may be true. But what's fair is sometimes at the company's own peril. As it stands, this price hike now placed Pandora One at 99 cents higher than what Sirius charges for its receiver-based streaming service.
Plus, there's the risk of Pandora losing its stickiness factor. There were those who were unwilling to switch from Pandora to iTunes Radio. Pandora just might have given its listeners, many of whom are disparaged as "freeloaders," a reason to test the alternatives.
The company has just over 3 million (out of 75.3 million active listeners) subscribers to Pandora One; the rate hike doesn't seem like a good wager. What does management stand to gain?
It's been almost a year since Pandora instituted a 40-hour listening monthly limit on anyone listening for free via mobile device. Pandora said this was a way to better control its royalty payments, even though the policy was thought to impact fewer than 4% of its active listeners.