Internet Radio for Planes, Subways and Lost Cell Signals
Pandora Plus, with offline listening at a mid-level price, is sneaky innovative.
By Glenn Peoples, Insights and Analytics at Pandora
Often lost amidst coverage of Pandora’s earnings, royalties and the upcoming Pandora Premium have been a slew of innovative products: Artist Marketing Platform, a powerful tool for connecting artists and listeners; Thumbprint Radio, a station consisting of a listener’s favorite tracks across genres; and new visual ads that put brands in the space otherwise taken by album artwork, to name just a few.
Pandora Plus is another innovation that merits attention. Or, to be more precise, it’s an innovative product filled with innovations. Plus, the updated version of the ad-free radio service formerly known as Pandora One, launched in October, a month after Pandora finalized direct deals with the three major labels and Merlin. In the following days and weeks, Plus ended up competing for coverage with Premium; direct licensing agreements are more often associated with premium, on-demand services, rather than mid-priced radio products. Plus hasn’t been ignored, far from it. But even though Plus received media coverage and got a shout-out in Pandora’s fourth-quarter earnings call, its importance may have escaped some people.
Quietly or not, Plus is off to a great start, having added over 465,000 net new subscribers to raise total subscribers to 4.48 million in January. Consumers have clearly appreciated its mix of price and product. Whereas Pandora One was streaming-only and offered a limited number of skips, Plus expands the feature set while retaining the $4.99-per-month price. The skip ceiling has been eliminated and Plus gives the listener unlimited replays, a new feature also available, although with strings attached, to the free radio service.
The game-changer within Plus is offline listening. Previously, only subscribers to premium streaming services were given the ability to store songs to play offline. Over the years, a common pitch to consumers went something like, “Pay $9.99 per month and take your music anywhere.” Plus goes about offline listening differently. With Plus, a subscriber’s top three stations, plus Thumbprint Radio, are automatically downloaded to the device and refreshed over time. The subscriber need not pick and choose what is stored for future listening. It just happens. This hands-off approach is effectively the non-interactive service’s way of allowing offline listening without charging a premium price.
Offline listening doesn’t stray from the “lean back” experience of radio. When a Plus listener is streaming a station and then loses a WiFi or cell signal, Plus automatically switches to the stations saved for offline listening. When the signal is regained, Plus picks up where the streaming left off. It’s easy to imagine good use cases. When a person driving on a curvy mountain road loses a signal, Plus switches to a saved station without requiring the driver to reach for the smartphone. A person boarding a New York City subway will lose a signal. Switching to airplane mode before a flight causes a smartphone to lose a signal. Or maybe a Plus subscriber will switch to offline listening to stay under a cellular plan’s data limit.
Plus’s combination of price and product is arguably another innovation. Some people in the music industry, including Mark Mulligan of MiDIA Research, have been calling for a mid-tier option that would capture the demand for a product that’s priced under premium’s $9.99 per month. (Furthermore, it’s important to reach these mid-priced consumers without discounting a premium product or outright slashing its price.) Free Pandora will always exist, but some listeners will pay for more features if given the option. With its upgrades, and now with offline listening, Plus has more of an interactive feel while mostly hewing to the non-interactive roots of Pandora One.
Artists, songwriters and rights holders benefit from the innovation in Plus, too, because Plus pays a greater royalty rate than the free radio service. This difference in royalties exists because a Plus subscriber is worth more than a free radio listener. At $4.99 per month, a Plus listener has an annual ARPU (average revenue per user) of $60 compared to a target ARPU of $26 for a free radio listener. In the same way, a Plus spin generates a greater royalty than a free radio spin. That was the case under the previous rate structure established by the Copyright Royalty Board, and it’s still the case today under direct deals with labels. So, the more people listen to Plus, and the more listeners graduate from free radio to Plus, the higher the royalty.
All eyes are on next month’s debut of Pandora Premium—as they should be. Premium’s unique take on the on-demand, all-you-can-eat music experience has innovation upon innovation. But not all listeners will want the deep dive of a premium service. Maybe they’ll be attracted to a pitch like, “Pay $4.99 a month and take some music anywhere,” a revision of the old pitch for an on-demand service. Include ad-free listening and a few other features and that’s basically Plus’s pitch. It’s a good pitch, too.