Pandora Shmandora! (The folly of targeting customers who refuse to pay)

In Greek mythology, Pandora's curiosity released many bad things into the world when she opened the box, most of which were so frightening she quickly closed the box trapping only "hope" inside. I am not aware of the full extent of the evil released that day, (after all, it is literally Greek to me) but I assume amongst them, there would possibly be the personification of the miser. Webster defines the word miser as: "a mean grasping person; especially one who is extremely stingy with money." Interestingly it is the Latin root of the word miserable. 

Also of ancient Greek origin is the name Seirios or Sirius meaning "glowing" or "scorcher," commonly known as the dog star, or the dog of Orion, recognized as the brightest star in the night sky, located in the constellation Canis Major. It's appearance in the pre-dawn sky in conjunction with the sun marks the "dog days" of summer. As for the Greek myth of "XM" it can only be defined as beyond AM and beyond FM.

In the ongoing debate of Pandora vs. Sirius XM, the following examples should illustrate how Sirius Xm is the winner, was the winner before the debate began, and will continue winning for the foreseeable future.

First, Sirius Xm chose to create and provide a service to deliver music, comedy, news, sports, talk, traffic, weather, health and religion, unrestricted in its range, unlimited in its usage, uncensored in it's content, and in some cases exclusive in it's offerings, made available from coast to coast to a willing, loyal customer base who in return for this unrivaled service agrees to pay a fee on a monthly, yearly or lifetime basis. In other words, a business model designed to make a profit, and though it may have taken many years to ultimately achieve, the plan has become sustainable and today continues to grow in size, popularity and profitability. Admittedly, it is initially given away for free on a trial basis, but with the self confidence and knowledge that to be exposed to the service is to love it.

When the free trial eventually ends, it is up to the individual to decide if it is worth paying for, thereby eliminating the undesirable business killing miser. Roughly 50% find it worth paying for. In 2008 Arbitron released a study of satellite radio listeners. The study found that 56% of satellite radio listeners were college educated compared to 24% of the AM/FM audience. 24% of Satellite radio listeners had incomes of at least $150,000 compared to 9% of the AM/FM audience. Satellite radio listeners are 61% more likely to listen to an advertisement than their AM/FM counterparts. Sirius recently surpassed 20,000,000 subscribers in December 2010. As for profitability, I will let the release of the 4th quarter 2010 earnings on February 15th speak for itself, this Tuesday.

Pandora who has yet to become profitable, chose instead to provide internet radio with personalized music stations for “free” with limited skipping of undesired songs. Predictably, as with most free things Pandora was (and is) extremely popular with young people who have no money to spend (at least not on internet radio music).

In the beginning, this initially free source of music enabled the service to spread quickly, not unlike the wild west days of the illegal but popular Napster music "sharing" service and the commercial free YouTube years. The "cool factor" was extremely high, unless of course you were the author of the protected copy written material being stolen or exploited. With the implementation of the mandatory royalty agreement enacted to compensate the artists, the "cool factor" has itself now cooled.

The new rules caused a transformation of this "free for all" version into a new "less free" version, with limited song skipping and a 40 hour maximum monthly usage restriction, made possible by the visible and audible advertising interruptions that account for 86% of its revenue, and the totally un-cool, unrestricted, no-ad, premium "Pandora One" version available for $3/month, offered to a customer base that is mostly (and unabashedly) unwilling to pay for the music they provide. In fact to call them customers at all is inaccurate. Webster defines the word "customer" as: "one that purchases a commodity or service". Patron isn't a very accurate description either; let's describe them in the most accurate yet pejorative way possible-- "Users". Today, Pandora boasts 80,000,000 registered users. That sounds incredible! Doesn't it? ( Editor's note: The latest reports indicate that 30,000,000 "users" actually "use" the service, although the actual number of users does not seem to appear in the IPO filing with the S.E.C. )

Now let's explore the rarely discussed, but widely used "work around" for circumventing the limitations of the skip provision, of this "less free" version that most of Pandora's "30,000,000" users prefer. You may want to sit down for this. Once the service has reached it's maximum allowable music skips or 40 hour monthly limit, kids simply log off the expired account, and log on under a new account using a different name and e-mail address. Never underestimate a miser's resourcefulness and ability to improvise when faced with an impending expenditure!

As many of you know, I am fond of reading the comments under online articles and blogs. They are very revealing, entertaining and most informative. We will call this next part the "from the mouths of babes" section. All excerpts below are quoted from the Pandora website blog archive from July 7 2008 shortly after the royalty agreement was reached. I have omitted the names to protect the not so innocent, however the actual unedited text remains online in the Pandora blog archives for your perusal. The following quotes are the genuine, illustrative thoughts, statements and threats of the truly undesirable, unapologetic and unknowingly hilarious "consumer" Pandora imposed upon itself by offering music for free in the first place.

For your consideration and cherry picked for your education and amusement. I quote:

"I am sure you are aware that as soon as people start getting charged to listen, they will just move onto another site."

"The $.99 fee shouldn't be a burden to anyone, and I look forward to ordering Pandora One when finances permit"

"Great news. I'll ask the hard question, though: Will Pandora be toning down the recent explosion of adverts?"

"I'd seriously like to recommend is a sleep timer function in the iphone app. As it stands a LOT of money is being wasted on the bandwith for those of us that fall asleep to pandora."

"I just got an email about this. I listen to Pandora all day so I'm sure it would only take me 3-4 days to hit the 40hour mark."

"I'm always hesitant to pay for online radio because I never know if I'll stick with the service long term. However, 0.99 isn't too bad so I may just end up paying. We'll see."

"I don't really want or need any of the things in Pandora One, but paying $5.94 for six months of music or something would interest me."

"I hate you and I hope you die-- bye pandora, last.fm, here i come!"

"While I don't listen enough during the school year to justify $36 (I know, I know... but I'm a college student - $36 is more than I pay for my electric bill each month)"

"I am very hesitant to pay for music online (don't buy music offline either) since I am in college and really can't afford much. This I can and happily will pay a buck a month for."

"Perhaps if you had some form of automated checking system, though (ex. Amazon.com) it would allow people like me to pay =O."

"now I'll have to stop having Pandora on all day every day xD"

"1) having to pay for the radio is just ridiculous 2) considering the big changes brought in by the internet, this measure looks to me totally anachronistic, if not another reason for illegal downloads"

"I'd like to see a counter that shows how many hours you have left in a given month."

"I just wish the annoying audio advertisements would stop...they're absolutely horrible!!!"

"We hate the idea of limiting anyone's listening, but we have no choice but to react the economic realities of the new rates"

"I hope you choke on those words."

"does listening count towards the 40 hours if I have it on pause?"

"I'm already in for the premium membership - which in my opinion is worth every single cent of the $3/month it costs me!!"

Finally, Pandora recently announced it's desire for an IPO. With the questionable loyalty of Pandora's users and it's yet to be proven sustainability, this stock will be the new #1 target of the same shorts that nearly brought Sirius to it's knees, and to this I say good luck Pandora. I suggest using part of the reported $100,000,000 generated from the IPO to purchase a really good pry bar or perhaps the jaws of life to get at that box and the "hope" still trapped within.