DJ Steve Aoki performs during Pandora's Summer Crush in Los Angeles in August 2015.
Photograph by Chelsea Lauren — Getty Images
By Erin Griffith
September 1, 2015

To honor the tenth anniversary of its launch, Pandora (P) has made its online radio service ad-free for one day in a promotion called “Listener Love Day.”

The company expects to earn $310 million in revenue this quarter, or $4.3 million per day. That’s a hefty sum of cash to give up for a birthday party. But at the beginning of Pandora’s second decade in business, its executives are likely doing some soul-searching. When Pandora launched in 2005, the world of streaming music was a very difference place. For starters, there were no connected cars or smartphones connected or smart cone speakers.

Ten years later and the music streaming ecosystem has transformed itself, but Pandora hasn’t changed its tune. Perhaps that’s how the company has avoided public spats with music’s preeminent capitalist, Taylor Swift.

In the beginning, Pandora had to fight for its right to survive. Artists complained they weren’t earning enough on the platform; in 2008 Pandora threatened to shut down when the rates charged by SoundExchange, the rights management organization, were set to rise. A Billboard cover story titled “World War P” outlined the many factious camps out to kill the streaming service. One acquisition of a terrestrial radio station and many impassioned letters Congressional hearings later, and Pandora continues to fight those fights. The company managed to go public in 2011, despite criticisms of its “suicide pact” business model.

As a public company, Pandora has delivered relatively steady revenue growth, but its stock remains in the same range as its IPO four years ago. Meanwhile, competition has poured in from all sides.

Most notably from Sweden. Spotify is now worth $8 billion, more than twice Pandora’s current market valuation. Spotify launched three years after Pandora and didn’t come to the U.S. until 2011, but its revenue has outstripped Pandora’s. Spotify made $1.3 billion last year. Pandora made $920 million.

More recently, Apple’s streaming offering, Apple Music, snagged 11 million sign-ups within its first week of launching. (Surveys suggest half of them dropped out after the initial trial period.) Meanwhile YouTube is expected to launch its own music subscription service any day now.

There’s also competition from the place Pandora would have least expected it: terrestrial radio, which has enjoyed the low royalty fees of zero dollars for their entire existence. Last year Clear Channel, the terrestrial radio behemoth, renamed itself iHeartMedia to better reflect its move to digital. iHeartRadio, its streaming service, has more than 70 million registered users. It has not said how many of those are active users.

Amid all the change and new competition, Pandora has not budged from its focus on a “lean-back experience” of radio stations created by algorithms. Unlike its competitors, Pandora does not offer music on-demand, there’s no emphasis on human-curated playlists or on upgrading users to subscriptions. (It has a small subscription business, but advertising is the core focus). Rather, Pandora has steadily grown revenue, forecasting a 25% increase this year.

In its earnings reports, Pandora emphasizes its ability to target locally (a big boon for the 2016 election) and its growth in mobile ads. But its user metrics are buried toward the bottom: Active listeners grew just 4% year-over-year to 79.4 million last quarter. By contrast, Spotify now has 75 million active users, 20 million of which pay a monthly subscription fee.

Today’s ad-free promotion might deliver a slight hit to Pandora’s revenue, but I’m betting that the good will it can foster from users, especially ones that have wandered off to try out new competition, might be worth it.

Update: This story previously stated that Pandora does not use human curators for its music playlists. While an algorithm chooses which songs to play when, humans organize the songs.

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