The music streaming company Pandora recently announced that users can now get access to its premium service also on a daily basis, by purchasing a 24-hour subscription. With 80 million listeners, Pandora is a leader in the digital streaming space and this move will have significant impact on the industry. So what is the motivation behind this decision?
The mobile apps ecosystem is dominated by the freemium business model: give content out for free and hope that enough people are happy with the service to purchase premium features later on (or in the context of games, generate revenue from in-app purchases). Due to this, digital media companies are in a tough spot where paid services often have to compete with dozens of free alternatives. Even though a $4.99 monthly subscription is a small cost for US consumers, paying for something online when you are used to getting everything for free is a challenging proposition.
Therefore, creating a “teaser” product to bring new users on board makes perfect sense for Pandora. If the user enjoys their day of ad-free music listening enough, they are quite likely to also transition to the monthly subscription which is significantly cheaper for the consumer (continuing with daily passes would cost 6 times as much). Several merchants using Fortumo’s platform have also adopted this approach: for example the video streaming service Ditto TV as well as Gaana, the leading music provider in India with over 10 million users.
The other compelling reason to introduce cheaper pricing and 1-day packs is the huge growth of digital content consumption in emerging markets. There are now almost as many smartphone owners in India than there are in the US. But lower income and non-existent credit card penetration in Asia and other quickly growing regions mean that most users do not have the means to pay for monthly subscriptions using traditional payment methods. In order to monetize the users in these markets, cheaper pricing tiers and shorter access to content is the way to go.
While Pandora’s one day passes are only available in the US for now, the most significant impact for them would most likely come from international markets. And it would not be too surprising to see other digital streaming companies move in the same direction. Emerging markets where card-based payments do not work are growing quicker than the already established Western markets. This means streaming companies have to review their monetization strategy as well.