Pandora Caps Mobile Streaming As Ad Revenue Falls Short

Mobile Ad Revenue Can't Cover Music Royalty Payments

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Pandora is placing a 40-hour-per-month limit on free mobile listening, company founder Tim Westergren announced in a blog post on Wednesday. The decision is designed to move Pandora's heaviest mobile users to paying subscribers in order to offset rising royalty costs.

Tim Westergren
Tim Westergren Credit: Gary He

Mr. Westergren said the move is antithetical to the company's goal of trying to provide the music service to as wide an audience as possible, but necessary given ad revenue isn't sufficient to pay music royalty rates. Pandora said this change will affect less than 4% of its users, heavy mobile users who don't pay for a subscription.

"Limiting listening is a very unusual thing to do, and very contrary to our mission so we wanted to share a quick explanation," Mr. Westergren wrote. "Pandora's per-track royalty rates have increased more than 25% over the last 3 years, including 9% in 2013 alone and are scheduled to increase an additional 16% over the next two years."

Pandora One subscriptions cost $3.99 per month or $36 per year and allow users to stream an unlimited amount of music, advertising free.

The company had a similar policy in place years ago when it capped free desktop listening at 40 hours per month, but that limit was lifted in September 2011.

More than 80% of Pandora users access the music-streaming service on mobile devices, making it the most well-indexed major media company on mobile devices, according to comScore. Pandora has been unable to monetize this large mobile audience, however. Users who stream Pandora for free are subject to audio and video ads, but the ad revenue is not enough to overcome the royalty rates for songs.

The decision comes amidst news that music industry revenue was on the rise for the first time since digital music was popularized by Napster in the late 90s. Illegal peer-to-peer music sharing declined 17% in 2012 from the previous year, according to a report released by research firm NPD Group earlier this week.

The Internet's promise of being able to offer unlimited access to music for free is diminishing.

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