Market Insight

iHeartRadio and Pandora unveil premium music plans

December 21, 2016  | Subscribers Only


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US online music radio services Pandora and iHeartRadio have unveiled more details of their forthcoming premium on-demand subscription music plans.

iHeartMedia, iHeartRadio’s parent company, launched beta versions of its paid subscription services for on-demand music for iOS and Android devices.

Full mobile and desktop availability of iHeartRadio Plus and iHeartRadio All Access powered by Napster will launch in January 2017.

iHeartRadio Plus is an ad-free personal radio service priced at $4.99/month. It features the ability to replay songs from the radio and offers unlimited skips.

iHeartRadio All Access powered by Napster follows the industry standard $9.99/month price for unlimited on-demand and offline access to a full song catalogue.

Pandora Media also unveiled more details of its soon to launch on-demand premium subscription service. Pandora Premium will be priced at $9.99/month and aims to differentiate through its use of smart playlists which leverage its existing data on users’ music preferences to autofill playlists started by its audience.

 

Our Analysis:

Pandora and iHeartRadio are late entrants to the growing and competitive US subscription music market

Pandora and iHeartRadio are two long established US online music services, but so far they have been focused on ad-supported or limited premium radio services. Their relatively late entrance into the US on-demand subscription music business comes after many competitors have established solid footholds in the market. Spotify first launched in the US in 2011, but the US on-demand subscription business did not fully take off until Apple Music’s 2015 debut kick-started the market. Apple reported a total of 20m Apple Music subscribers in December 2016, up from 17m in September 2016.  Almost half of Apple Music subscribers are from the US.

Differentiation and user acquisition will be challenging

The proposed $9.99 standard rate for both Pandora’s and iHeartRadio’s premium is in line with the rest of the industry, but IHS understands that the increased use of promotions, discounts and family plans means that in reality subscription music ARPUs are lower than the headline price. Spotify, Apple and Google all now offer a six account family plan for $14.99 per month and many services have partnered with telcos, offer discounts for user groups such as students, or provide extended free trial periods.

Both Pandora and iHeartRadio have built up large audiences for their existing, mostly free, services from which they hope to convert users to their premium offers. iHeartRadio counts 90m registered user and Pandora reports 78 monthly listeners. Many Pandora or iHeartRadio free users will have already signed up to premium music services from the likes of Apple, Spotify, Google, and to a lesser extent services including Tidal, Rhapsody-Napster, Deezer and Amazon’s bundled Prime Music service. Pandora and iHeartRadio may now struggle to persuade customers to churn from an existing service.

Ad-funded services likely to remain central despite new products

The addition of new premium services provides an additional revenue stream for both iHeartRadio and Pandora – but IHS does not expect either company to see subscription revenues surpass their core advertising businesses in the short-to-medium term. Instead, the launch of subscription plans is also designed to defend their core business.  It may help hold on to users that would otherwise look to shift to an alternative because of the lack of a premium offer. Pandora’s recent strategy shows how it is aiming to provide a full range of music services including free ad-supported and paid-for personal radio access, premium on-demand music, and integration with gigs and ticketing through its acquisition of TicketFly.

Profitability still a challenge for standalone services

As largely standalone digital music services, not counting iHeartMedia’s terrestrial radio stations, both Pandora and iHeartRadio will face a challenge around profitability. Bigger technology companies like Apple, Google and Amazon can offer music as part of a wider ecosystem strategy through which they don’t need music to be profitable provided it can support their other businesses such as device sales for Apple, advertising for Google and commerce and retail for Amazon.  

 

Geography
USA
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