Last week, when Pandora Radio notified its listeners that it would be capping the number of hours mobile users could stream in one month, a logical assumption would be that its customer base responded with appropriate levels of snarky backlash via social networks and forum commentary. Surveying reactions from across the Net, this didn’t seem to be the case. The loudest and lengthiest criticism to the 40-hour-per-month streaming cap actually came from Tim Westergren, one of Pandora’s founders.
“Limiting listening is a very unusual thing to do, and very contrary to our mission,” Westergren said in Pandora’s note to its listeners on February 27. Attributing the cap to rising per-track royalty rates on Pandora content, Westergren is also quoted on Buzzfeed, saying, “Internet radio has been stuck with its own rate-setting standard that is different and much worse than the similar rate-setting standards for other radio mediums like satellite radio and cable radio.” Understandably, Westergren is frustrated with the fact that these royalty rates—which he cites as having increased by as much as 25% in the past three years and 9% in 2013 alone—have forced his company’s hand into implementing the limit. Pandora’s mission, after all, is to offer free listening to its millions of users, and no company wants to go back on its word.
Since offering its service to mobile devices, Pandora has seen upwards of a whopping 75% of its listenership go mobile as well. It also claims that only a scant 4% of these on-the-move listeners will hit this 40-hour limit and when they do, a reasonable $0.99 is all it takes to unlock its service for the remainder of the month. All told, this new restriction isn’t likely to upset too many—if it does, those freeloaders need to stop whining—and the financial boost across more than 2.5 billion mobile listening hours that Pandora provides each quarter will be significant (according to dailyfinance.com, the company streamed more than 3.5 billion total hours in its last quarter of 2012).
While new limits to a site that claims free music content as its core product offering should spark concern amongst the Pandora faithfuls, the move raises bigger questions about the limits of Pandora’s entire business model; questions that are clearly a concern for its executive suite and its investors. The same dailyfinance.com story, entitled “Why Pandora Will Never Be Great Again,” reports that share prices are shrinking and advertising dollars are holding steady at best. If Westergren and fellow congressional lobbyists don’t make any headway with the Radio Internet Fairness Act (RIFA), which is a stalled bill meant to set reasonable standards for online radio royalty rates, then Pandora is left with two options: kick its account managers into high gear to bring up those ad dollars, or drop the whole free idea from its business model—to some degree anyway.
Currently, Westergren and company seem to be doing a bit of both; a smart move, but is it enough? Sure, Pandora is the vanguard company for this whole Internet radio thing, but now there’s Muve Music, Spotify, and increasingly-frequent headlines reporting that Sirius, Google, and, in a rumored collaboration called DAISY, Apple and the HTC-owned Beats by Dre are trying to get in on the action. Each is likely to tweak the business model and offer something Pandora currently does not, and like Spotify, do it at a premium. The question then becomes, does the Internet Radio pioneer enact more than a financial patch job to remain relevant in the market. Like the fallible, mortal woman of Greek mythology it’s named after, Pandora has opened up this Internet radio box. Will it merely cling to the hope that it can weather this perfect storm of competition, royalty rates, and advertising headaches, or will it rise to the challenge and remain the innovative company we know it, and love it, for being? We, for our part, are confident that it will.