Pandora Plus And The Mid Tier Opportunity

Pandora continued its steady path towards subscriptions today with the announcement of a revamp of its premium radio offering Pandora One and confirmation of a forthcoming 9.99 tier. These of course have been in the works since its acquisition of Rdio’s assets back in November 2015. In the update Pandora One becomes Pandora Plus and gets new features including: ‘predictive offline playback’ for when signal drops, unlimited skips and unlimited replays. Pandora Plus may have a mid tier price point ($4.99) but it is not a mid priced subscription service, instead it is a premium priced radio service. This is not a revival of Rdio’s $3.99 Select offering nor is it a shot across Spotify and Apple’s bows. Nonetheless it is the start of a bolder streaming strategy for Pandora and it does raise the perennial issue of the case for mid priced subscriptions. Premium radio offerings like Pandora One Plus represent around 5 million subscribers in the US and are an important part of the market. But they are only the tip of the opportunity.

The case for mid priced subscriptions is clear: $9.99 is not a mainstream price point. It is fantastic value for music super fans, but more than mainstream fans are willing to pay. 9.99 subscriptions will continue to grow solidly for the next few years as the remaining untapped super fans are converted. But once that base is saturated the market needs something more, that’s where mid priced subscriptions come into play, helping unlock the next layer of consumers. Mid priced subscriptions can represent the best of both worlds, delivering large scale and premium revenue.

Mid Price Is No Easy Sell

However, the mid priced market is not without challenges, indeed, of the original wave of mid priced subscription services that came to market Blinkbox is gone, Cur Media is gone, Guvera is all but gone while Psonar and MusicQubed are still in market. The key challenges this market faces are:

  • It is not easy selling to mainstream consumers: mainstream consumers have less disposable income, are less engaged with music than super fans and are harder to convert
  • It is hard to compete against free: while there are on demand free services in the market (YouTube, Vevo, Spotify free) it is hard for mid priced products to compete in value terms. These free services steal much of the oxygen out of the market. $1 for 3 month trials from Spotify and co only compounds this issue
  • It is hard to differentiate: Label licensing constraints mean that the mid priced products deliver far less value than full priced products due to the restrictions imposed on them. Pandora’s INSERT gives the users 100 on demand tracks a month. That is 0.0003% of the 30 million on Spotify for 40% of the price of Spotify, or 1197% of the price of Spotify’s $1 for 3 months trial

Mid Tier Needs To Be Given More Substance

In short, the mid priced segment needs empowering with proper functionality. Mid tier products need more tracks and more on demand playback. Of course this has to be within clear bounds, else the risk of cannibalizing 9.99 tiers is to strong. But there are many other ways to do this rather than creating a painfully restrictive limit on the number tracks that can be played on demand. Here are some examples of how to differentiate mid tier while maintaining genuine user value by delivering more content and more choice in return:

  • Windowed content only (e.g. a 4 week window on new releases)
  • Limit on number of tracks that can be added to a playlist
  • Genre specific subscriptions
  • Strong focus on pushed playlists
  • Cheaper pricing ($2.99 or $3.99 to reflect the changed marketplace)

For mid tier to work, the music industry needs to have the confidence that the $9.99 product is good enough to keep its core customer base, that these users will not jump ship for a product squarely aimed at the mainstream.

After a couple of years in the wilderness it looks like the marketplace is beginning to warm to mid tier once again. In addition to Pandora’s moves, Sony Music and Universal Music quietly launched the £5.99 Now Music app into the UK market earlier this year while MusicQubed’s MTV Trax has been getting large scale TV advertising support from Viacom. Meanwhile QQ Music and Apple Music are both driving scale in China with a price point equivalent to around $2.

$9.99 was always a blunt instrument, a sledgehammer to crack a nut. Now though, while $9.99 adoption is still growing, is the time to have a far more sophisticated approach to pricing. The safe option would be to wait until $9.99 growth slows. But by then it would be too late.

3 thoughts on “Pandora Plus And The Mid Tier Opportunity

  1. UMG music business suicide in progress!
    All inclusive subs and Vevo style ads are shrinking $200B of obvious to a stranger music goodwill to at the best $25B music swamp – not sooner then 2025. Very sad Sir Lucian Grange!

  2. Mark, a question about how we consider price points in emerging markets like China.

    As you know the premium price point (roughly $10 in the Europe & US) is set lower in developing nations. About $5 in many countries, including Russia, and sometimes even lower for other countries.

    With the average yearly wage in China being just under $10k, a $2 price point doesn’t necessarily seem ‘mid-tier’, except for in the urban centers of the country.

    How do you weigh data & price points from rapidly developing countries? Ignore the lower income population and use growing middle class as the benchmark?

  3. Seriously, the easiest way to handle mid tier pricing is… Wait for it… Limiting the number of ad free streams! Seriously it’s not hard. This is an archaic business model, but it works. If you go on the hook for a higher amount per month, you get a lower price per unit. Like a daily newspaper subscription vs just a Sunday subscription vs buying a one off out of a machine. It’s simple. Buy in volume and save. Every industry on earth uses this basic model. The music business used to too until it got thrown out in the digital age.

    To me it seems that it should be something like $14.99-19.99 a month for hi-fi audio + random perks (Exclusive interviews? A free shirt? Whatever, be clever.), $9.99 for “regular” unlimited streaming, then lower price points. Maybe $7.99 a month for up to 500 (at 3 minutes a song this is 25 hours of listening a month) ad free streams a month (note 0.01598 per stream, which is higher than they average on unlimited), $4.99 a month for 300 streams, $2.99 a month for 100. Or something along those lines.

    Then if you use all the ad free streams, you get the option of maybe buying a booster pack of 100 streams for $2 or kicked down to ad based streaming until the next month rolls around. If you’re constantly hitting your limit, you’ll probably bump up the subscription until you don’t. Or if you’re cheap you put up with ads for the last week of the month every month. Whatever floats your boat.

    A lot of people don’t listing to music 12 hours a day. Or even if they do they might listen to their huge MP3 collection at home on their awesome hi-fi system 95% of the time, but still want streaming for when out and about. I think this is the most straight forward approach possible. It is a higher per stream price than labels have currently agreed too, so there should be no objection on their part. Likewise I think SOME consumers would go for it. Maybe not all, but casual listeners… Which is exactly the demographic that is being targeted by lower tiers.

    To my mind the genre based limiting seems to be too easy to cannibalize $9.99 tier subscribers. A lot of people are “one genre” people. A HUGE country music geek might be ok with unlimited country tunes, and if he can get that for $4.99 he will, even if he would have shelled out $9.99. Also how do you genreize some bands? Is Johnny Cash only in Country, even though he was a huge pop act as well? Is Elvis included in Rock and Pop? What about his Gospel album, is that only in Christian/Gospel genre subscriptions? It seems like a messy business, and those are pretty straight forward situations… Where do some of the real genre crossing acts end up?

    I’m not saying it shouldn’t be experimented with, but I think the number of plays method is a better way. Windowing of new releases also makes sense across the board to me as a practical way to incentivize higher tiers. There are other ways to try to be sure, but I really think simply limiting the number of ad free streams is the simplest and most straight forward way to start out with lower tiers.

    I’m a co-owner of a record label, and I just don’t see how none of the idiots at the major labels OR big streaming companies has pushed through a tier like this, even if it was just as an experiment. It’s so obvious that it literally hurts my brain knowing that nobody has tried it.

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