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Pandora to drop 40 hour per month limit on free accounts just before iTunes Radio launch [Update: App updated with sleep timer]


During Pandora’s earnings call today, the company’s CFO, Mike Herring, announced that the service will be dropping its 40 hours per month limit on mobile devices for free accounts. TechCrunch posted this statement:

When we introduced the 40 hour mobile listening limit, we were confident that our scale – over 7% of total radio listening and Pandora’s number one ranking in most major markets – would allow us to take this action without impacting our key monetization initiatives in driving the disruption of the radio advertising market and driving our mobile advertising leadership. As our results have shown, the continued strong growth in our advertising revenue allowed us to cover the increased royalty costs with dollars left over to invest back into the business.

With these tools in hand, and insight into how they work, we are resetting our levers in September. Notably, Pandora plans to eliminate the blanket 40-hour-per-month limit on free mobile listening effective September 1st.

The company also published a related press release :

Pandora (NYSE: P), the leading internet radio service, today announced it will remove the 40-hour-per-month limit on free mobile listening effective September 1, 2013.

“We’re pleased to once again maximize free listening for everyone on Pandora,” said Tim Westergren, Pandora’s founder. “The more than 70 million listeners that tune in every month will now have more time to hear the music they love, and thousands of working artists will reach more fans.”

The limit on free mobile listening was introduced in March 2013 to manage rapidly increasing royalty costs. While in place, this affected fewer than four percent of total monthly active listeners. The company continues to utilize multiple additional levers to carefully and effectively manage its content cost.

Pandora has been dealing with the balancing act of paying for content and pushing out as advertisements. Back in May, Bloomberg looked into the situation and found that some investors weren’t sure if the limit would also reduce the number of ads delivered to users. Only around 4% of its listeners were going over the cap at the time, but only a portion of those users would return and buy into a paid subscription after the cap was reintroduced on mobile devices back in February. At the same time, the introduction of the cap saw the service’s total listening hours drop around 5.1% within a month:

Pandora’s results since implementing the cap suggest the company is starting to contain content costs, its biggest expense, without alienating listeners. With fewer hours of use, investors are concerned that the company is also sacrificing advertising revenue, said Michael Pachter, an analyst with Wedbush Securities Inc. in Los Angeles.

The company reported revenues of $162 million which is is up 58% YoY; however, iTunes Radio is expected to launch in just a few short weeks and we’ll find out at their next earnings call if Apple’s music streaming service affects revenue for Pandora. For its part, Apple has partnered with very large sponsors and secured multi-million dollar advertising deals for the iTunes Radio service.

Pandora is available free in the App Store. iTunes Radio will have a free version with ads, but users can listen ad-free by subscribing to the $24.99/year iTunes Match service.

Update: Also, Pandora’s iOS app has been updated to version 4.5 which includes a new sleep timer feature and additional bug fixes:

What’s New in Version 4.5

• Sleep timer with 15, 30, or 60 minute options to continue playing your favorite Pandora station while you fall asleep
• Bug fixes and improvements