Now We Know Why Pandora Was Throwing Shade at Spotify and YouTube -- It Wants to Join Them, Sort Of

Pandora, the Internet radio service, says that after buying Rdio, a music subscription service, it wants to offer a new subscription service of its own next year.

What will that service look like? Pandora execs won’t say.

But they don’t have to, because they pretty much spelled it out a few weeks ago: It won’t look like Spotify and YouTube, which let people listen to as much music as they want, for free, on-demand, for as long as they want. Instead, it will look like Apple Music, which gives away free music with limits.

During Pandora’s last earnings call, its executives went out of their way to repeatedly describe Spotify’s and YouTube’s practice of giving away free unlimited music forever* as “unsustainable.” Now we know why: They were laying the groundwork for the subscription service they would like to build using some of Rdio’s spare parts.

Pandora needs to lay that groundwork because music labels and publishers have generally been unhappy with the company, because they think Pandora doesn’t pay them enough to use their songs (Pandora thinks the opposite, of course).

The music owners haven’t been able to do anything about it, though, since Pandora takes advantage of a “compulsory license,” with rates set by the U.S. government, because Pandora’s Web radio service is considered “non-interactive.”

Non-interactive music services aren’t nearly as robust as on-demand services like Spotify — you can tell Pandora you’d like to hear some music like the Rolling Stones, but Pandora picks the songs you hear, and it will only play you a certain number of Stones songs per hour, and it limits your ability to skip songs. But Pandora’s non-interactive service is very popular — it has 79 million users, almost all of whom are in the U.S.

So Pandora seems unlikely to abandon the thing people like. Instead it will look to add an on-demand service, presumably at the $10-a-month price point that Rdio, Spotify and everyone else sells for. In other words: Limited music for free, unlimited music for a fee.

That’s the same model Apple uses with its Apple Music service: You can listen to Beats Music and other Apple-programmed Internet radio stations for free, forever; if you want on-demand music, you need to pay up.

The difference is that the music labels generally get along with Apple, and they’ve been frosty with Pandora for many years. So Pandora has some making up to do.

Hence this kind of language from Pandora CEO Brian McAndrews during his conference call announcing the deal today: “Establishing productive and collaborative partnerships with music makers puts Pandora in the strongest possible position to deliver on our long‐term vision … we’re having far more constructive conversations with the industry than we have ever had before.”

Let’s see what the labels have to say about that.

* Spotify bristles at this characterization, because Spotify only offers truly unlimited free on-demand music to people who use the service on PCs; free Spotify users have much more limited options on their phones, and Spotify says that mobile usage accounts for the majority of its streams. Noted! But until Spotify stops offering unlimited free on-demand music to some of its listeners, it is offering unlimited free on-demand music.