Pandora caps free mobile listening as royalty costs surge

Tools

Pandora Media is imposing new monthly listening limits on its free mobile streaming music service, a measure to help the firm address mounting royalty fees.

Moving forward, Pandora--which offers music apps for platforms including Apple's (NASDAQ:AAPL) iOS and Google's (NASDAQ:GOOG) Android--will cap mobile users at 40 listening hours per month. In a blog post announcing the change, Pandora founder Tim Westergren said the new limit will impact less than 4 percent of the company's 65.6 million total monthly active users, noting the average listener spends approximately 20 hours accessing Pandora in a given month.

"That said, limiting listening is a very unusual thing to do, and very contrary to our mission so we wanted to share a quick explanation," Westergren writes. "Pandora's per-track royalty rates have increased more than 25 percent over the last three years, including 9 percent in 2013 alone and are scheduled to increase an additional 16 percent over the next two years. After a close look at our overall listening, a 40-hour-per-month mobile listening limit allows us to manage these escalating costs with minimal listener disruption."

Westergren adds that listeners who do hit the monthly limit can "[l]isten for free for as many hours as desired on desktop and laptop computers, pay $0.99 for unlimited listening for the remainder of that month, or subscribe to Pandora One for unlimited listening and no advertising." Pandora One is priced at $3.99 per month or $36 per year.

Web-based streaming music services like Pandora are subject to a different music licensing rate than traditional radio companies: Each time a user listens to a track via mobile device or the desktop, Pandora must pay a royalty fee. The Wall Street Journal reports Pandora's per-track royalties are set to increase to 0.14 cent in 2015 from 0.12 cent this year; the company is currently lobbying Congress to pass the Internet Radio Fairness Act, which would overhaul how royalties are paid to recording artists.

A Pandora spokesperson told the Journal the firm would consider removing the new mobile usage cap if mobile advertising revenues continue to improve and help balance out listener hours. Ad revenue per thousand listener hours in the company's third quarter reached $26.96 on mobile and $56.40 across devices.

For more:
- read this Pandora Blog entry
- read this Wall Street Journal article (sub. req.)
- read this Reuters article

Related articles:
Pandora redesign brings uniform UI across both iOS and Android
Pandora mobile ad revenues leap to $59.2 million, CFO plans exit
Pandora: 70% of listening hours on mobile devices
Pandora: Mobile ads now half of total advertising revenue
Pandora IPO generates $234.9M
Pandora premieres iPad ad platform

Comments