Royalty costs have finally trickled down to users of Pandora. The $36 annual plan for Pandora One is no more thanks to a 53% increase in royalty costs in the past five years. That number is expected to increase another 9% by 2015. New customers to the service will have to select the $4.99 per month plan, while annual users will be pushed into a $3.99 per month plan. The move raises subscription prices for annual users by 33%, and 25% for new users looking for a monthly plan.
Current customers on the $3.99 monthly plan will be grandfathered in at that price for the duration of their subscription. The company detailed the reasoning behind the price increase, and what it means for current users. “We’ve been fortunate to be able to offer Pandora One at an affordable price since its debut in 2009 at $36 per year and later with the introduction of a monthly subscription for only $3.99 per month. Over this same period, the costs of delivering this service have grown considerably. For example, the royalty rates Pandora pays to performers via SoundExchange for subscription listening have increased 53% in the last five years and will increase another 9% in 2015.”
Annual users will see the new pricing upon their next renewal date. So far, no announcements have been made concerning the free users, which is ad-supported.
Reaction on Wall Street has been positive, though the stock’s gains are fading in late morning action. Shares jumped above $36, but have since come back down to $35.38, up just over a percent on the day. The company recently set a 52-week high of $40.44, and the new pricing structure should reassure investors going into earnings season.
One issue that always surrounds a price increase is will users stick around? The price is low enough that Pandora shouldn’t see any mass exodus away from the service. The new subscription tier will not kick in until May, so the company has a window to market the low cost option to new subscribers.