Pandora Steps Ahead In Its Subscriber Quest With The Launch Of One Day Pass

In an attempt to bolster its revenue growth, Pandora Media (NYSE:P) recently introduced the $0.99 “Pandora One Day Pass”, wherein subscribers can enjoy commercial-free music for an entire day. ^[1] Though paying for ad-free music on a daily basis is much more expensive than the monthly or annual subscription, the company expects to attract a number of occasional listeners, who are unlikely to shed $4.99 or $54.89 in a single go. With Pandora not reaping enough revenues through advertisements to counter its hefty content acquisition and sales and marketing expenses, garnering incremental revenues from subscriptions has become extremely important.

In our recently published note, Why The Subscription Business Is Important For Pandora And Where Is It Going?, we had discussed the importance of the subscription business for the company. The bottom line is that with royalty rates expected to rise significantly in 2016, the sustainability of Pandora’s business will ultimately boil down to its subscription business.

Our price estimate for Pandora is at $21, implying a premium of about 15% to the current market price.

On its 10th anniversary, Pandora held the “Listener’s Love Day”, enabling all its users to listen to commercial free music for a single day. In addition to a promotional strategy to enhance the company’s market visibility, the “Listener’s Love Day” served as a trailer for its “Pandora One Day Pass”. With the launch of its one day subscription, Pandora expects to bring in incremental subscription revenues while keeping its advertisement revenue growth unaltered. It is likely that after paying a dollar and listening to ad-free music for a day, some users will be prompted to switch to monthly subscription because it is much cheaper.

Pandora has over 80 million active users, but less than 5% of them subscribe to its services. The launch of “Pandora One Day Pass” is a step directed towards the increasing the percentage who subscribe. Having said that, considering the availability of several free music services in the market and Pandora’s relatively weaker content, convincing free users to pay for ad-free services will not be easy. However, 99 cents is an amount that smartphone users gleefully pay for a variety of apps, even when most of them don’t add much value to their experience. In case of Pandora, users will be able to enjoy uninterpreted music for this small  amount, which is why one day subscription should be a success for the company. We trust management is seeking additional way to boost overall subscriber growth, diminishing its overall losses.

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1. Pandora One Day Pass Available for Purchase Following Company’s Ten-Year Anniversary Celebration, Listener Love Day, Pandora, Sep 8 2015 [↩]