Pandora, Spotify Are Not Competitors

NEW YORK (TheStreet) -- Early in 2013, Pandora (P) instituted a 40-hour listening cap on mobile devices. While short-lived, it served its purpose -- to moderate listener hours and reign in content costs a bit.

I won't bore you with the wonky details, but, internally, Pandora looks at how it monetizes paid versus free listeners. As the company built out its sales infrastructure (e.g., adding sales people, securing integration into radio ad buyers' systems), it achieved and continues to achieve its monetization goals vis-a-vis free listeners, eliminating the need for the cap. In Pandora: The Definitive Look Back and Look Ahead, I lay out numbers that support this notion.

Mobile revenue up 58% year-over-year. Music royalties now account for less than 50% of revenue. I dig deeper into the numbers in the above-linked article, but the point is that constantly improving monetization led to these numbers and, in turn, Pandora lifting the cap.

This look back applies to the present day as I aim to provide a better understanding, not only of Pandora, but Internet radio in general.

One other outcome of Pandora's mobile listening cap was a 114% year-over-year increase in subscription revenue.

This might lead you to believe, intuitively, that Pandora would see the triple-digit pop and go for broke trying to add subscribers. But, as I detail in a recent article that explains exactly what Pandora's strategy is, that's not the business model.

While Pandora cares about its subscription business -- I understand they recently put the guy who built the World of Warcraft sub biz in charge of it -- it's never going to be more than 20% of revenue. And that comes straight from sources within the company.

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