Will More Expensive Pandora Internet Radio Subscriptions Hurt the Stock?

To pay ever-increasing royalty rates, executives raise prices on the most valuable users of Pandora Internet Radio.

Mar 21, 2014 at 9:38PM

Pandora Media (NYSE:P) isn't any more immune to growing pains than other businesses in its sector. As such, it shouldn't be surprising to see the company boosting prices on its most valuable Pandora Internet Radio subscribers to cover rising royalty payments to artists. The stock is nevertheless down nearly 4% since the news broke. Fool contributor Tim Beyers explains the implications in the following video.

Specifically, the company is ending annual subscriptions, and asking new members to pay $4.99 monthly for One, the ad-free version of Pandora Internet Radio. Existing members will be grandfathered in at $3.99, while those who've paid annually in the past will be asked to begin paying monthly when their year is up.

Can investors expect the rate changes to impact profits? Unlikely, Tim says. Premium subscribers to Pandora Internet Radio accounted for 18.7% of revenue in the most recent quarter, and that's with the segment's contribution more than doubling year over year -- from $10.3 million to $25.7 million.

Tim sees the move not so much as a reaction, but as proper planning. In a blog post, the company said that royalty rates are up 53% during the past five years and are on pace to rise another 9% in 2015. Raising prices for ad-free Pandora Internet Radio now should allow the company to avoid the fate of the airline industry, which has found it difficult to boost fares despite rising fuel costs.

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Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool recommends Pandora Media. The Motley Fool owns shares of Pandora Media. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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