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Pandora Says 40-Hour Mobile Cap Cuts Music Content Costs

• Andy Fixmer via Bloomberg.com
 

Pandora Media Inc. (P), the biggest online radio service, said a 40-hour monthly limit on mobile users imposed earlier this year has cut music streaming and content costs as intended, while the audience continued to grow.

Pandora streamed 1.31 billion hours of songs in April, the first full month with the cap in place, a 5.1 percent drop from February’s 1.38 billion, the Oakland, California-based company said yesterday in an e-mailed statement. Adjusting for February’s fewer days, listeners streamed 10 percent less, Chief Executive Officer Joe Kennedy said in an interview.
 
“The decline in hours will be very closely mirrored in content acquisition costs,” Kennedy said, declining to provide specifics. The company reports fiscal 2014 first-quarter results on May 23.

Pandora’s results since implementing the cap suggest the company is starting to contain content costs, its biggest expense, without alienating listeners. With fewer hours of use, investors are concerned that the company is also sacrificing advertising revenue, said Michael Pachter, an analyst with Wedbush Securities Inc. in Los Angeles.

“The hours are down sequentially,” said Pachter, who has a neutral rating on the shares. “A lot of that has to do with the mobile cap, which chased away some abusive users, but the company will still have some explaining to do.”

Pandora fell 4.1 percent to $14.08 at 2:46 p.m. in New York after declining 6 percent, the biggest intraday drop in about a month. Before today, the stock had climbed 60 percent this year, outperforming the 14 percent gain in the Russell 1000 Index.

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