Pandora dumps 40-hour monthly mobile listening cap thanks to ad sales
Pandora Media is removing a 40-hour monthly listening limit on its free mobile streaming music service, stating it is able to make the change thanks to increasing mobile advertising revenues.
Pandora imposed the monthly listening cap in March, a move to address mounting royalty fees. It will lift the cap on Sept. 1. "Our limit on mobile users listening hours had the outcome we intended, with growth in content cost tightly controlled while having very low impact on listeners or our ability to grow revenue," Pandora Chairman and CEO Joe Kennedy said Thursday during the firm's quarterly earnings call, according to a Seeking Alpha transcript. "Total listener hours grew to 3.88 billion for the quarter, up 18 percent compared to the year-ago quarter."
Pandora reported total second quarter revenues of $162 million, a 58 percent year-over-year increase. Mobile revenues surged 92 percent from the second quarter of 2012 to $116 million. "Total mobile ad revenue was around $90 million and Web ad revenue would be about $40 million or so, $38 million," Pandora CFO Mike Herring said on the earnings call.
Active Pandora users reached 71.2 million in the second quarter, up 30 percent from a year ago. Its share of total U.S. radio listening activity climbed to 7.08 percent, increasing from 6.02 percent at this time last year.
Pandora is available across more than 1,000 consumer electronic devices and will be installed in roughly one third of all new automobiles sold in the U.S. this year. Moving forward, the company will face mounting competition headlined by Apple's (NASDAQ:AAPL) iTunes Radio, widely expected to go live next month in tandem with the new iOS 7. iTunes Radio enables listeners to access more than 200 Apple-curated featured stations or to create their own stations based on favorite artists and songs. Users may also share stations with friends. Any song played through iTunes Radio may be purchased with one click from Apple's iTunes digital storefront, the music business' largest source of digital revenues with an estimated $4.3 billion in download sales in 2012.
iTunes Radio will pay royalties to labels based on how many times listeners hear their songs and how much advertising Apple sells, The Wall Street Journal reported in June. During the first year the service is live, Apple will award label partners 0.13 cents each time a song is played, as well as 15 percent of net advertising revenue, proportionate to a given label's share of the music played on iTunes Radio. In year two, label payouts increase to 0.14 cents per listen and 19 percent of ad revenue. The Journal adds that many of the stipulations are more generous to labels than their current agreements with Pandora.
Speaking to All Things D, Kennedy downplayed the threat iTunes Radio poses to Pandora's future. "We've now been around for eight years. We've seen competitors large and small enter the market and, in some cases, exit the market," he said. "I've never seen an analysis that identifies an effect from any competitor… we don't see the picture changing."
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