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Why Is Pandora Launching More Paid Subscription Plans?

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Pandora’s subscription plans

Subscription-based music streaming is a quickly growing business, and Pandora Media (P) is set to take advantage of this trend. The Wall Street Journal reported on August 19 that Pandora Media is likely to add two more paid monthly subscription plans in addition to its free tier. Pandora Media has a music subscription service, Pandora One, priced at around $5 per month. Pandora already has a 10% market share of the radio listening market in the United States, and the company had stated in its fiscal 2015 earnings call that it believes its subscription business will be worth $1.3 billion over the next five years.

Pandora had active listeners of 78.1 million at the end of fiscal 2Q16, a decline of 2% year-over-year. According to the Wall Street Journal report, the majority of Pandora users use its free service, while around 4 million subscribers subscribe to Pandora One.

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Why is Pandora launching additional subscription tiers?

Pandora is facing increasing competition from other music streaming services including Apple Music (AAPL) and Spotify. Alphabet’s (GOOG) YouTube also launched a free YouTube Music app last year that’s available with a YouTube Red subscription.

According to RIAA’s (Recording Industry Association of America) shipment and revenue statistics, streaming services comprised 34.3% of the total revenues for the recording industry in the United States in 2015. The US music streaming industry consists of subscription-based music streaming, free and ad-supported music streaming services, and SoundExchange’s collection and distribution of digital performance royalties.

As the above chart shows, paid subscription-based music streaming contributed $1.2 billion to total music streaming revenues in the United States in 2015.

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