For more than a month now, rumors of a $5 per month premium music service from Pandora Media Inc (NYSE:P) have been circulating, ever since The Wall Street Journal first broke the news last month. Yesterday, the New York Times speculated that Pandora might unveil this new pricing structure as early as this week.
And today, Pandora stock is up a few percent on news that the streaming music company has signed several licensing agreements with major labels and big-name independents, including Sony Corp (ADR) (NYSE:SNE).
Pandora has some things going for it. For instance, P pulled in more than $343 million in revenue last quarter — a 20% increase year-over-year.
Interestingly, more than $265 million came from ads served up to Pandora’s 76 million free listeners — a 15% year-over-year increase — and only $55 million was generated from paid subscribers — a 1% year-over-year increase.
That’s why Pandora is gunning after a paid plan. But …
Doesn’t Pandora Already Have a $5 Plan?
Actually, yes, Pandora has offered a $5 premium subscription service for quite a while now, called Pandora One. However, the main feature of that service is ad-free listening.
With new plan — which all Pandora One subscribers will, apparently, be automatically switched to — will give members the ability to skip songs and store music for offline playback. These features are supposed to help Pandora better compete with services such as Spotify and Apple Music.
One feature that hasn’t been mentioned, though, is the ability to allow users to pick and choose specific songs and tracks to play immediately or save offline.
Management clearly is looking to gain market share by challenging the current $10-per-month industry standard for streaming music. But the big question is whether these new features will be received well enough to make a difference. Pandora stock investors are looking for (or, more accurately, crossing their fingers and hoping for a boost in P shares to levels nearer the $18 mark — the newly raised price target at SunTrust Robinson Humphrey.
And despite this morning’s announcement, the chances of significant gains resulting from these label and distributor agreements doesn’t seem likely. Indeed, a working relationship with the music industry’s powerhouses is a step in the right direction, but the real key is what management plans to do with that newfound flexibility. Simply offering a wider range of albums to listeners isn’t going to carry much weight alongside current streaming rivals.
Nay, Pandora is going to have to offer something truly revolutionary to woo subscribers away from Spotify and Apple Inc.’s (NASDAQ:AAPL) Apple Music, and a cheaper price isn’t enough.
Bottom Line on Pandora Stock
When Pandora management finally makes the official announcement unveiling its $5-per-month subscription plan, there’s a decent chance that P stock will see at least a small bump.
Don’t expect anything meteoric, though.
The truth is Pandora isn’t offering anything revolutionary in the way of streaming music subscription features. The company has had an identically priced subscription for a long time, yet that service has only been able to generate a fraction of the revenue that comes from advertisements on its free service.
What does that mean?
Well, simply put, it means that tens of millions of listeners have come to accept the occasional interruptions and commercials. So, the ad-free component of the new service likely won’t hold much weight. The real question, then, will be how many of Pandora’s current “free” users might consider song skipping and offline playlists as being worth $5 per month?
Alongside Apple Music and Spotify — which apparently have 13 million and 39 million paying subscribers, respectively — it’s hard to imagine even a small paradigm shift in favor of Pandora. Plus, don’t expect P rivals to sit on their heels on do nothing while Pandora unveils something new. Competition in the streaming music industry, like any other, is very much a tit-for-tat arena.
The real truth of the matter will become clear when management reveals quarterly revenue figures once its new service is actually up and running.
Until then, Pandora stock is a hold at best.
As of this writing, Greg Gambone did not hold a position in any of the aforementioned securities.