Streaming radio service Pandora announced today it will introduce a cap on mobile listening as it grapples with rising royalty rates.
Nonpaying users of the service will be limited to 40 hours of free music each month, after which time they will be invited to pay a one-time fee of 99 cents for the remainder of the month or subscribe to the premium service, which features unlimited music and is advertising free. Users will also have the option of listening to unlimited listening via desktop.
Pandora, which eliminated a similar listening limit for desktop users in September 2011, blamed increasing royalty licensing costs for the mobile cap's introduction.
"Pandora's per-track royalty rates have increased more than 25 percent over the last three years, including 9 percent in 2013 alone and are scheduled to increase an additional 16 percent over the next two years," Pandora founder Tim Westergren wrote in a company blog post announcing the move. "After a close look at our overall listening, a 40-hour-per-month mobile listening limit allows us to manage these escalating costs with minimal listener disruption."
Users will receive a warning when they near their limit, but the move is expected to affect only about 4 percent of the service's active monthly users, Westergren wrote, adding that the average user spends only about 20 hours a month listening to Pandora on all devices.
Pandora has long maintained that Web radio services pay too much in music royalties and stumped for federal legislation last year for the Internet Radio Fairness Act, federal legislation that would have reduced the rates streaming services pay had it passed.
Pandora reported in December a net income of just over $2 million, or a penny a share, for the fiscal third quarter, actually exceeding analysts' expectations slightly. However, the streaming service spooked investors when it revealed it expects a loss between 6 cents and 9 cents a share in the fiscal fourth quarter.