Tuesday, September 6, 2016

Pandora’s $5-a-month option could be a game-changer

Written by Claire Atkinson — Pandora is aiming to cut through the noise.

The Internet radio player is seeking to challenge streaming rivals with a revamped $5-a-month service that will give users added functionality, such as the ability to skip songs and play music off-line, sources said.

“The $5 offer will be killer for them,” said one industry insider. “Pandora has 76 million users that listen for free. It will have an easier time to get them to pay $5, so you might see some people switch back to Pandora.”

Most unlimited streaming services charge $10 a month. Pandora is also planning to offer a full-fledged streaming option in that same price range, along with the cheaper $5 tier, sources said.

Pandora investors are hoping the new options — coupled with other ideas such as new video ads — will juice revenue and push the stock into the $20 range, which both the company’s board and many shareholders feel is closer to its true value.

The stock, which is down 19 percent in the past year, closed Friday at $14.43. Pandora went public at $16 a share in 2011.

The Oakland, Calif.-based company currently offers a radio service, called Pandora One, for $4.99 per month with no ads and fewer interruptions than its free option. Those customers will be rolled into the revamped $5 offering, sources said.

But Pandora derives the bulk of its revenue from advertising as opposed to subscriptions. In the second quarter, Pandora recorded roughly $265 million in ad revenue.

At the same time, Pandora is being challenged by Apple Music’s Beats 1 radio and by a host of other paid streaming services, including Spotify, Rhapsody and Deezer, among others.

Pandora has reached global rights deals with two of the three music majors and has been targeting Sept. 12 as the launch date for the new price tiers, a source said.

One investor believes the $5 tier could attract 20 percent to 30 percent of its 78.1 million monthly active users.

“They’ve invested a lot of money in this [on-demand service],” said one source. “There is a pressure to make it work, but they’re not out of business if they don’t.”

Pandora is feeling the heat from an activist investor. Keith Meister’s Corvex Management, which disclosed a nearly 10 percent stake in May, has been agitating for a sale of the company.

Pandora, which has hired bank Centerview to explore options, has long been seen as a takeover target.

Indeed, Liberty Media, which owns satellite-radio outfit Sirius XM, made an informal offer to buy Pandora for $15 a share in July, according to WSJ.com.

Spotify and Google are frequently floated as possibilities as well.

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