Pandora Turns Its 'Value Exchange' Upside Down As It Faces Pressure From Rivals

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Credit: Pandora

Pandora is making a significant shift in how it delivers music -- and in the process, how it captures ad revenue.

Pandora will now let its users listen to music on demand without a subscription. In exchange, the listener will have to watch a 15-second video ad. The move signals a departure from what made Pandora so popular when it first launched on the web in 2005. Back then, music was mainly streamed from the desktop and the company itself had few, if any, rivals.

Now, however, the industry is approaching an instant gratification-inflection point in which consumers are demanding products and features anywhere at any time, says Lizzie Widhelm, senior VP of ad product strategy at Pandora. "Brands are looking for one-to-one quality moments with the people they want to speak to and connect with," she says. "With the expectations of advertising increasing and the rise of ad-blocking, the value exchange between brand and consumer is now more important than ever."

Pandora's shift from a subscription-only model to this additional construct comes amid increasing competition from rivals Apple Music and Spotify. The unpaid version of Spotify for mobile allows users to listen to the artists they like, but they can't select specific songs. The paid version allows users to listen to any song they want whenever they want. Apple Music is akin to the paid version of Spotify, but does not have an unpaid offering.

Widhelm says Pandora's move was prompted by its 73 million U.S. users, whose top request has been the ability to direct play the specific song, album or playlist they want without paying to do so.

Pandora says it is seeing strong results from testing the new offering. According to the company, about 67 percent of users are satisfied with watching a commercial in exchange for listening to the music they want to hear.

"Consumers are seeking access to the content they want when they want it, but they don't always want to pay for it," says Widhelm. "We know that Pandora users, in particular, are increasingly looking to play songs or albums immediately, especially when they're on the go on their mobile devices, where we see the majority of our listening taking place."

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