Pandora Removes Listener Caps but Adds Tougher Limits on Skip Capability

Big changes are coming to major internet radio player Pandora in ways that will both open up the service and add some new restrictions for users.

The good news is that Pandora is removing its cap on mobile listening for the service. The company added a limit to how much music a user could listen to via their cell phone, in order to fight the cost of royalties that Pandora needed to pay out. However, the cap led to a dramatic decrease in the number of hours listeners spent using the service, which cut into the amount of profit they generated with advertising. Although the royalty charges will increase again, the final product will benefit Pandora more if there isn't a cap. During the second business quarter this year, the company spent 52 percent of its revenues on royalty payments, versus nearly 60 percent during the same period of 2012.

The bad news is that Pandora is seriously cutting back on the number of "skips" its users get while listening to music. The service previously allowed listeners to hit skip a maximum of six times during any given hour; in other words, if you didn't want to hear a song, you could pass to the next track. Now, users will only get 12 skips during a 24 hour period. This isn't really bad news for fans who want to find new music, but it could be devastating to casual listeners who want to hear only the tracks they know.

Pandora will also move to cut unnecessary royalties from its budget by adding a "sleep" mode that will automatically stop the music after a preset time.

The company seems to have found its feet based on last quarter's RPM, or revenue per thousand listening hour. It dropped from $23.51 to $23.23 during the first quarter of 2013, but jumped dramatically to $33.90 during the second quarter.

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