Question

Case:

Pandora is the Internet’s most successful subscription radio service. In May 2014, Pandora had 77 million registered users. Pandora accounts for over 9 percent of total U.S. radio listening hours. The music is delivered to users from a cloud server, and is not stored on user devices.

It’s easy to see why Pandora is so popular. Users are able to hear only the music they like. Each user selects a genre of music based on a favorite musician or vocalist, and a computer algorithm puts together a “personal radio station” that plays the music of the selected artist plus closely related music by different artists. The algorithm uses more than 450 factors to classify songs, such as the tempo and number of vocalists. These classifications, in conjunction with other signals from users, help Pandora’s algorithms select the next song to play.

People love Pandora, but the question is whether this popularity can be translated into profits. How can Pandora compete with other online music subscription services and online stations that have been making music available for free, sometimes without advertising? “Free” illegally downloaded music has also been a significant factor, as has been iTunes, charging 99 cents per song with no ad support. At the time of Pandora’s founding (2005), iTunes was already a roaring success.

Pandora’s first model was to give away 10 hours of free music and then ask subscribers to pay $36 per month for a year once they used up their 10 free hours. Result: 100,000 people listened to their 10 hours for free and then refused to pay for the annual service. Facing financial collapse, in November 2005 Pandora introduced an ad-supported option. In 2006, Pandora added a “Buy” button to each song being played and struck deals with Amazon, iTunes, and other online retail sites. Pandora now gets an affiliate fee for directing listeners to sites where users can buy the music. In 2008, Pandora added an iPhone app to allow users to sign up from their smartphones and listen all day if they wanted. Today, 70 percent of Pandora’s advertising revenue comes from mobile.

In late 2009 the company launched Pandora One, a premium service that offered no advertising, higher quality streaming music, a desktop app, and fewer usage limits. The service costs $4.99 per month. A very small percentage of Pandora listeners have opted to pay for music subscriptions, with the vast majority opting for the free service with ads. In fiscal 2013 Pandora’s total revenue was $427.1 million, of which $375.2 million (88 percent) came from advertising.

Pandora has been touted as a leading example of the “freemium” revenue model, in which a business gives away some services for free and relies on a small percentage of customers to pay for premium versions of the same service. If a market is very large, getting just 1 percent of that market to pay could be very lucrative— under certain circumstances. Although freemium is an efficient way of amassing a large group of potential customers, companies, including Pandora, have found that it is challenging to convert people enjoying the free service into customers willing to pay. A freemium model works best when a business incurs very low marginal cost, approaching zero, for each free user of its services, when a business can be supported by the percentage of customers willing to pay, and when there are other revenues like advertising fees that can make up for shortfalls in subscriber revenues.

In Pandora’s case, it appears that revenues will continue to come overwhelmingly from advertising, and management is not worried. For the past few years, management has considered ads as having much more revenue-generating potential than paid subscriptions and is not pushing the ad-free service. By continually refining its algorithms, Pandora is able to increase user listening hours substantially. The more time people spend with Pandora, the more opportunities there are for Pandora to deliver ads and generate ad revenue. The average Pandora user listens to 19 hours of music per month.

Pandora is now intensively mining the data collected about its users for clues about the kinds of ads most likely to engage them. Pandora collects data about listener preferences from direct feedback such as likes and dislikes (indicated by thumbs up or down on the Pandora site) and “skip this song” requests, as well as data about which device people are using to listen to Pandora music, such as mobile phones or desktop computers. Pandora uses these inputs to select songs people will want to stick around for, and listen to. Pandora has honed its algorithms so they can analyze billions more signals from users generated over billions of listening minutes per month.

As impressive as these numbers are, Pandora (along with other streaming subscription services) is still struggling to show a profit. There are infrastructure costs and royalties to pay for content from the music labels. Pandora’s royalty rates are less flexible than those of its competitor Spotify, which signed individual song royalty agreements with each record label. Pandora could be paying even higher rates when its current royalty contracts expire in 2015. About 61 percent of Pandora’s revenue is currently allocated to paying royalties. Advertising can only be leveraged so far, because users who opt for free ad-supported services generally do not tolerate heavy ad loads.

CASE QUESTION:

What e-commerce revenue models are Pandora using? How does Pandora generate money with the revenue models? Explain your answer?

Answer 1

E- commerce Revenue Models of Pandora Using :

Pandora has around 250 million enlisted clients out of which 79.9million are dynamic. Throughout the years, there has been developing worries with respect to how Pandora infers its income. At the point when Pandora originally came into the business in August 2005, clients were required to pay $36 every year in the wake of getting 10 hours of free assistance; this had little impact on the organization's income desires as most endorsers declined leaving behind this sum for an online radio help in the wake of appreciating the free idea to the latest possible time. Be that as it may, somewhere in the range of 2010 and 2012, with expanding enrolled clients, Pandora's income moved from $55million to $274million with a larger part of this originating from paid publicizing. Pandora despite everything infers some portion of its income from paying audience members, the organization's arrival of "Pandora Plus," which is another membership administration in September 2016 and the dispatch of Pandora Premium validates this.

Pandora has hopped into on-request music gushing with "Pandora Premium." The organization will charge $10 month to month for its membership which is like what Apple Music and Spotify charge for this administration. This progression is probably going to draw in more supporters for Pandora given the way that the organization is attempting to move center from publicizing to a membership based model (Trefis).

Pandora controls around 78 percent of web radio and has about 9.3 percent portion of the US open radio, this inclusion presents a simpler way to pitch to sponsors and furthermore an immense income age potential. Clients get the chance to experience advertisements on the site and by means of portable; the presentation of flag promotions include on the site advances client commitment. Pandora's notices are very one of a kind with the way that its promotions are focused at explicit clients dependent on information procured through perusing exercises; this high client connection related to the wide inclusion gets cash for Pandora. Besides, Pandora offers a segment detail for promoters.

Pandora's uncluttered audience interface expands the effect of commercials. Pandora's showcase and video promotions show up when audience members click on Pandora highlights, for example, approval, disapproval, changing a melody. As of now, Pandora serves short of what one moment of sound promotions every hour of tuning in. As Pandora streams music, it can definitely tell the crowd size at some random time. It permits publicists to arrive at singular audience members dependent on their age, sexual orientation, postal district, and music inclination (Trefis).

On the whole, while Pandora has its significant salary originating from advertisements and memberships through portable and the web, the organization additionally has interests in different sources. In 2014, Heidi Browning, the organization's VP asserted that all the smash hit traveler vehicles in the US have Pandora administrations introduced, demonstrating the expansion of the organization's administrations to the car showcase so as to produce more income.

Pandora Generate money with following revenue models :

Radio Royalties

Through the quick development and extension of the web music industry, debates have flared among craftsmen and the business over the apparent absence of legitimate pay.

2014, platinum recording craftsman Taylor Swift pulled her music from Spotify's foundation to bring issues to light of what she regarded lacking craftsman remuneration. She was back on by 2017.

The music business produces a segment of its salary from sovereignties that are expected each time a melody is played in broad daylight. Open execution incorporates music played over the radio or through internet providers.

Sovereignties are installments made to the legitimate proprietor of a copyrighted work, which might possibly be the craftsman who made it. Execution rights associations gather songwriting sovereignties from music clients and circulate them to the legitimate proprietors.

The associations that gather sovereignties from radio exhibitions incorporate BMI, ASCAP, and SESAC.

BMI arranges a radio presentation as a communicate that keeps going 60 seconds or more. Every presentation is arranged as business, traditional, or school radio.

Business radio exhibitions envelop music commonly played on FM communicates, with a potential for rewards dependent on ubiquity.

Old style radio is related with conventional instrumental and vocal exhibitions and nets 32 pennies for every moment.

Exhibitions played on stations related with schools or colleges are named school radio and pay littler sovereignties than business stations.

Without a doubt, spilling organizations have attempted to stretch the limits a piece. In 2015, Apple Music offered a three-month free preliminary of its administration and discreetly told the marks they were not going to pay any rights on their preliminary use, however it later called it quits after an open objection from (you got it) Taylor Swift.

Computerized Royalties

Music gushing administrations keep on multiplying, as exemplified by industry pioneers Pandora, iHeartRadio, iTunes Radio, and Spotify.

By 2019, gushing music represented 80% of music industry income, as per the Recording Industry Association of America. Absolute incomes became 18% to $5.4 billion in the primary portion of 2019.

The expanded income can be credited to more noteworthy quantities of individuals marking on to membership benefits just as deals from downloads.

The organization SoundExchange works as an expense gatherer for the business, charging execution eminences for recording craftsmen and names at whatever point music is played through an advanced stage. As a delegate of the music business in the advanced space, SoundExchange likewise has arranging control over sovereignty understandings.

Pandora

Pandora brings in its cash a similar way radio broadcasts do, from publicizing that is embedded into the playlist. Evaluations are that about portion of its incomes are paid out in permitting charges.

Spotify

Spotify offers a free assistance with promoting and premium administrations.

Since its initiation in 2008, sovereignties have been Spotify's biggest cost, representing about $1 billion over its initial five years.

The organization once positioned as one of the business' most exceedingly awful sovereignty payers, yet it is consistently expanding its installments. Its per-play rate was 0.00437 pennies in 2019, as per Digital Music News.

(The most exceedingly terrible paying stage verifiably is YouTube. Its rate in 2019 purportedly was 0.00069 pennies.)

Per stream eminence installments are assessed to be .006 pennies for essential assistance and .0084 pennies for premium supporters. Anyway with huge overhead costs, the Swedish organization is still assessed to net $1.2 billion from its 10 million paying supporters alone. Spotify was as of late esteemed at $8.3 billion.

Of course, craftsmen have additionally seen unmistakable abatements in collection deals numbers because of the development of gushing administrations, for example, Pandora and Spotify.

As innovation has advanced, the scene of the music business has changed from radio stations, to mp3s, and now to music gushing administrations. Organizations working in the advanced music space have seen huge year-over-year development because of paid memberships and on-screen commercials.

Despite the fact that craftsmen, for example, Drake and Lil Wayne each gross a yearly pace of $3 million from Pandora alone, a few specialists state the framework isn't reasonable.

As Pandora and Spotify proceed with their quick extension and income development, we may see more specialists follow Taylor Swift's lead in kicking the present sovereignty model.

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