As it struggles to deal with rising royalty costs, streaming radio service Pandora is bringing back an old idea by capping free mobile usage at 40 hours per month.
The company previously limited free monthly desktop usage to 40 hours, but it lifted the cap in September 2011. CEO Joe Kennedy suggested that Pandora’s mobile business is in a similar position to its desktop business a few years ago — it needs to make more money. At the same time, Kennedy said his goal is still to offer free music to everyone.
“When you have a per-track royalty structure … there’s an inherent conflict between what radio has always been [namely, free] and what’s pragmatically reasonable,” Kennedy said. “We’re trying to balance the two. We’re certainly not backing down from the vision that we’re the future of radio. As mobile monetization improves over time, we’ll lift this.”
He also noted that there’s a big difference between mobile and desktop usage patterns — there are desktop users who basically listen to Pandora all day while they’re at work, so a larger percentage of them that exceeded the monthly limit. On mobile, however, the cap should only affect 4 percent of users.
That may not be much consolation if you’re in that 4 percent. Kennedy said the company is also trying to make the system as straightforward as possible. You’ll get an alert when you reach 85 percent of the limit, and when you hit the cap, there are a couple of pricing options: You can pay a one-time fee of 99 cents to get unlimited listening for the rest of the month, or you can sign up for a Pandora One subscription, which includes unlimited, advertising-free songs. Or you can decide that you don’t want to pay and just listen on your desktop/laptop computer for the rest of the month. And if you’re thinking about getting around the limit by just creating a second account, Pandora says that won’t work, because it’s applying the cap at both an account and a device level.
As stated earlier, Kennedy is placing much of the blame on the rising cost of music — he said that per-track royalty rates have increased 25 percent in the past three years, with an additional 16 percent increase expected over the next two years.
In the company’s most recent earnings release, Pandora reported growing revenue and a tiny profit, but its forecast was much lower than expected.
The cap will take effect starting in March. You can read more about the decision on the Pandora blog.