Pandora raises its subscription price, citing royalty hikes

Pandora announced higher prices for its premium listening plan, Pandora One. The changes result from escalating royalty costs to labels and performers, according to the blog-post announcement, and will take effect for some subscribers this week.

Pandora One is a subscription product that provides uninterrupted, ad-free listening to Pandora’s Internet radio. Two plans have been in effect until now: a monthly charge of $3.99, and an annual billing of $36. Annual subscribers enjoy a discount of about 12 dollars per year.

In the new scheme, the annual plan will be eliminated, and the monthly price will be raised to $4.99, a 25% jump. Annual subscribers who reach their renewal dates will be changed over to a monthly plan at the old rat ($3.99/month), enjoying a discount but paying more than previously. New subscribers will be charged $4.99 a month, starting in May. Existing monthly customers will enjoy the same rate as before.

Winners and newcomers

That’s a little complicated, but here’s the upshot: The winners are existing monthly subscribers — no change for them. New subscriber will pay 25% more, for the same service, like airline passengers sitting side-by-side in seats of different prices. And existing annual subscribers will get the most blunt sticker shock when they renew.

Even with the hike, Pandora’s premium pricing is about half the cost of Rhapsody, Google All Access, Beats Music, and other jukebox services that provide enhanced features to paying users. Pandora’s discount makes sense, as it is a so-called non-interactive service — you cannot bring up a band or a song and listen to it, put it into a playlist, or download it to your phone for offline listening.

Even with still-reasonable pricing, Pandora might be navigating into dangerous water. As the field grows more crowded and competitive, perceived value is shifting. Apple’s iTunes Radio charges $25 a year to eliminate ads with its iTunes Match premium product. Samsung recently introduced Milk, a cost-free, ad-free listening service for Samsung customers. Spotify, Rdio, and many others offer radio-like service in addition to advanced features.

However, Pandora characterizes itself as an advertising business, not a subscription business. No doubt it values each subscriber and its subscription revenue as a whole. But the announcement emphasized that Pandora has 250-million registered users (plus over 70-million active monthly listeners), and the price changes affect only 3.3-million current subscribers.