Internet radio service provider
) recently announced that it would raise the fees for its ad-free
service by $1.00 to almost $4.99 per month from May onward.
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Reportedly, this move was initiated by the company in order to
cover the continuously increasing cost of licensing tunes. The
amount paid as royalties to artists has increased 53.0% over the
last five years and is expected to go up by another 9.0% in 2015.
In such a scenario, Pandora found no other way of retrieving
costs than to raise its fees. This announcement comes on the
heels of a federal judge's ruling, which stopped Pandora from
lowering the current royalty rate of 1.85% to 1.70%, which it
pays to songwriters to license their music.
Pandora is doing away with its $36.0 annual subscription.
Instead, yearly subscribers will now move to a monthly $3.99
loyalty plan once their membership expires. This new plan would
add up to an amount much higher than what existing members had
been paying so far and thus prove to be costly for them.
The company, however, claimed that only 3.3 million users out of
a total of 250 million users will get affected by the price hike.
Moreover, Pandora will continue offering its highly
individualized programmable music stations for free, with
This hike in rates may adversely affect the subscription base of
the company amidst stiff competition from the likes of rivals
) which in turn may lead to reduction in growth and profitability
of the company going forward.
Pandora enjoys a first mover's advantage in the music streaming
industry. We believe that the company already has a popular
service, driven by its effective discovery engine and a
Currently, Pandora has a Zacks Rank # 3 (Hold).