Pandora's enhanced streaming opens new front in music wars

Record labels are clinging to $US9.99 a month subscriptions for on-demand music. Pandora Media, the internet radio company, last week signed deals with Sony Music, Warner Music and others to offer this for the first time - priced at the same rate charged by Apple, Spotify and others. But in a break from the new normal, the labels will also back a $4.99 a month service offering streaming radio with more listener control (such as pausing or skipping tracks) and offline streaming.
             

Labels had been wary about enabling cheaper options lest they once again cannibalise existing revenues. But all sides need to increase the size of the pie, seeking a big untapped audience willing to pay less than $120 a year.

Pandora has 78m active users but growth has stalled. Adding the $9.99 service, for which Pandora takes 30-35 per cent, is unlikely to solve that. But it may help deter users in search of a premium service from switching to rivals. Pandora reckons it can have a $1.3bn subscription business in five years, which would require almost 11m users to upgrade. The company has data to inform that estimate, but does not explain why those of its customers with the propensity to pay have not already taken up the on-demand services available from rivals.

The big question is how replicable is the newly enhanced internet radio product, which will continue to support the bulk of revenues. Pandora has played catch-up in on-demand.