Evidence of the cap's effect can be seen in Pandora's financials. Royalties consumed 52% of revenue in Pandora's second quarter, down from 59.8% in the prior-year period. At the same time, subscription (and revenue other than advertising) grew to 18.3% of total revenue from 11.7% of revenue a year earlier. But because of growth in sales and marketing expense -- to 29.1% of revenue in the second quarter from 23.2% a year earlier -- Pandora's net loss grew 44% to $7.8 million.
As the cap is relinquished, Pandora has rolled out additional cost-saving measures -- it calls these “strategic levers” -- that preclude a further need for a listening cap.
One measure, first mentioned during Thursday’s earnings call, is a new limit on song skipping. The service has long enforced a limit of six skips per station per hour, a limit required of all DMCA-compliant non-interactive webcasters. But Pandora now also limits listeners to 12 skips in a rolling 24-hour period. A skip is considered to be a skipped track, a "thumbs down" rating or a selection of "I'm tired of this track."
Pandora Media Stock Slides 13 Percent
Pandora has also debuted a “sleep timer” in version 4.5 of its mobile app automatically shuts off music after a predetermined period of time. Introduced Thursday in a blog post, the sleep timer is touted as a consumer-friendly feature and one of Pandora's "top-requested new product features from listeners." But the cost-saving usefulness is obvious.
CFO Mike Herring credited "the continued strong growth in our advertising revenue" with Pandora's decision to drop the cap and implement the other measures. Pandora's mobile advertising RPM, or revenue per thousand listener hours, jumped to $33.90 in the second quarter from $23.23 in the first quarter and $23.51 in the fourth quarter.