Pandora Media Inc. is aiming to start expanding its
internet-radio service as soon as next month, offering its hallmark
free tier as well as two new monthly subscription options that will
mark its foray into on-demand music streaming, said people familiar
with the matter.
Pandora is close to inking deals with major record companies
that will allow it to do so both in the U.S. and in new overseas
markets, though the agreements haven't been finalized, these people
said.
While the music industry broadly supports the new paid tiers,
some record-label executives are still wary of granting Pandora
permission to launch its free service in new foreign markets
without the ability to control which songs they put on the free
tier.
Until now, the 16-year-old outfit hasn't had to secure
permission from record labels to use their music because it doesn't
let users listen to particular tunes on demand. It also had limited
its service to the U.S., Australia and New Zealand—the few
countries that make music licensing essentially automatic for
internet-radio firms, as long as they pay rates mandated by federal
judges or licensing collectives.
Pandora plans to roll out its new subscription tiers in the U.S.
and then in other English-speaking countries before launching
elsewhere, these people said.
The foreign expansion could jump start growth for Pandora, which
has seen its listenership plateau in recent years at about 80
million active monthly users. Most listeners use Pandora's free
tier, with about 4 million subscribing to an ad-free version of its
service, Pandora One, for $5 a month.
Neither of Pandora's current offerings allows users to select
specific songs to listen to; instead users pick a custom "station"
that includes music similar to their initial choice.
The slowdown in user growth has rattled investors. Shares, which
were trading around $20 last fall, fell 35% in November when the
company announced a dip in listenership from the prior quarter, and
haven't recovered much since. Shares closed at $12.93 on Thursday
in New York. A $90 million settlement Pandora paid late last year
to the record labels involving its use of music recorded before
1972 also sent the stock down.
When it launches in more markets abroad this fall, Pandora is
planning to create more ways for advertisers to make their pitches
on its free tier, while offering a $10-a-month service as well that
would give subscribers unlimited access to tens of millions of
tracks, much like Spotify AB, and Apple Inc.'s Apple Music. It also
is planning to augment its existing $5 ad-free tier with perks such
as the ability to skip more songs and listen to music offline, said
the people familiar with the matter.
While competing with the likes of Spotify, Apple and other
$10-a-month service providers may be difficult, some music-industry
executives believe that Pandora's planned $5-a-month tier presents
a bigger opportunity for the business, potentially unlocking new
revenue from consumers who want a bit more control over their
listening experience but wouldn't pay $10 a month.
The major record labels' willingness to let Pandora use their
music overseas and in new ways marks a dramatic shift. In recent
years, many label executives have shunned Pandora for paying them
far lower rates per user than services such as Spotify under the
terms of their compulsory government licenses, while competing with
such services for music fans' time and attention.
Even though Pandora's 2-million-song catalog is a fraction of
Spotify's and it hasn't offered on-demand tunes, some record-label
executives have worried that many U.S. consumers don't know the
difference between the two types of music services.
"There's a lack of clarity around what paid-premium services
offer," said MusicWatch Inc. analyst Russ Crupnick, adding that
these businesses have missed opportunities to educate mainstream
consumers.
Jay Z's Tidal, for example, launched last year with the
promotional backing of nearly 20 superstar artists. Their pitch to
the public, however, focused on how Tidal supposedly would
compensate artists more generously than competitors, rather than on
how the service actually worked, Mr. Crupnick said.
Still, there is some crossover: Roughly half of the paying
subscribers to Apple Music and Spotify in the U.S. also listen to
Pandora, according to Mr. Crupnick's research. He estimates there
are a total of about 15 million to 16 million paying
music-streaming subscribers in the U.S., while there were 68
million total subscribers world-wide in 2015, according to the
International Federation of the Phonographic Industry.
With its global revenue down 60% since 2000, the recorded-music
industry is hoping that paid-streaming services will grow fast
enough to make up for declining CD and download sales. Subscription
streaming generated $2 billion of the industry's $15 billion total
revenue, according to the IFPI.
Pandora's impending licensing deals with the industry could
complicate matters for companies that have been considering buying
the internet radio giant. Liberty Media Corp.'s chief executive,
Greg Maffei, floated an informal offer to acquire it earlier this
year, said people familiar with the matter.
While the new agreements will broaden Pandora's reach, they also
could increase Pandora's already high content costs, which
contributed to its $170 million net loss on revenue of $1.2 billion
last year.
Write to Hannah Karp at hannah.karp@wsj.com
(END) Dow Jones Newswires
August 19, 2016 08:05 ET (12:05 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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