Pandora: An Analysis of Consumer Incentives

The music industry is one that has been quite controversial over the past decade. Many recording artists publicly denounce fans that illegally download music and deduct from the artist profits.  Music streaming allows for music to be listened to even before it is finished downloading. While there is a variety of music streaming websites, Pandora is probably the most well known of the group. Pandora is unique in that the user creates a personalized station and is based on the try-before-you-buy model. Limiting the number of skipped songs per hour is Pandora’s strategy for abiding by copyright laws. Pandora prevents music from being captured with purchase and even has an obvious download button. However, this concept could be counterintuitive. Despite the goals of the business model, is it possible that free music stream sites like Pandora actually disincentivize traditional music downloads from iTunes, Wal-Mart, etc.? The answer to the question is one that would be of interest both to Pandora management and to many others in the music industry from consumers to recording artists. One way to analyze this could be to survey users and attempt to learn the number of “free riders” so to speak. Many of those categorized as Pandora free riders likely reduced their consumption of music downloads upon discovering the free music streaming site. An interesting question for a market analyst to examine could be: by what proportion did legally purchased music downloads fall after the introduction of free music streaming sites. If the results indicate a significant fall in traditional music downloads, which is Pandora’s way of generating revenue, could there be an end in sight for these free music streaming sites?

Pandora: http://www.pandora.com/station/play