Pandora started life as the Music Genome Project, a simple Web app that created streaming radio stations based on artists and songs you already like. As its popularity surged, Pandora evolved into a multi-million dollar company supported by the revenue it generates from playing ads for listeners and collecting subscriptions from heavy users. The frequency of ads in Pandora isn’t randomly determined, but is the result of ongoing market research, test studies, user feedback, and careful revenue tracking.
The Necessity of Advertising
While many Pandora users might prefer the service return to its ad-free roots, the advertisements Pandora plays are what generate the revenue it needs to pay the licensing fees for the songs it plays. Pandora offers a subscription for users who want an ad-free experience, but subscription revenue pales in comparison to ad revenue. According to its end-of-year investor report, Pandora earned $375.2 million in advertising revenue over the course of the 2013 financial year, compared to a mere $16.1 million for subscription revenue and “other” revenue.
Pandora’s Advertising Emphasis
Ad revenue is such an important component of the Pandora business model that the company recently backtracked on a plan to pull more mobile users into its subscription program and opted to adjust advertising volume instead. The company is constantly attempting to find the right ad volume per hour so that it can maximize its revenues without earning the ire of its listeners. In a recent interview with Advertising Age, Pandora chief revenue officer John Trimble noted, “…I think right now three minutes an hour continues to be a great user experience and allows us to be able to deliver against advertisers' needs.”
Platform-Specific Ad Volume
The number of ads you hear while listening to Pandora has a lot to do with the platform from which you access the service. For example, the 15- and 30-second ad spots Pandora users hear when accessing Pandora from a car with built-in Pandora integration represent the lowest ad volume per hour of any available Pandora platform. Pandora ad plays are also based on the station you listen to and the sponsors that have chosen to advertise on it; sponsors are able to determine how often their ads play when they agree to utilize the Pandora service.
If you want to listen to Pandora but don’t want to hear or see the advertisements, you can invest in a Pandora One membership. Pandora One includes a desktop application, higher-quality audio, fewer interruptions when listening for long periods of time, and a completely ad-free experience. One Pandora One subscription covers your desktop, browser and mobile use of the Pandora service. As of June 2014, Pandora One’s subscription fee was $4.99 per month.