Pandora Hikes Prices; Spotify Offers a Deal to College Students

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Having Pandora (P) fish through its growing digital catalog to surprise music buffs with commercial-free tunes is getting more expensive.

Pandora Media recently announced that the price for its Pandora One service will increase by 25 percent to $4.99 a month for new subscribers starting in May. Existing subscribers paying $3.99 a month will be able to continue at that rate, but the $36 a year premium plan will no longer be available.

Will You Pay More?

Unlike the groaning that followed the hike in Amazon.com's (AMZN) Prime, there has so far been minimal backlash for Pandora. That's because just 3.3 million of Pandora's 75.3 million active listeners pay for Pandora One. The other 72 million accept the ad blocks and the limited skips (Pandora limits free users to skipping six songs in an hour or 24 over the course of a day).

Pandora perpetually tweaks its terms and limitations, but this is the first time that it has increased its Pandora One rate since it was introduced in 2009. Compared to satellite radio that has gone through a pair of increases since 2012 and the annual increases of most cable and satellite television providers, it's hard to paint Pandora as greedy. As Pandora explains in justifying the increase, the royalties that it pays to performers through SoundExchange for subscription listening have soared 53 percent over the past five years.

Battle of the Bands

It's probably just a coincidence that Spotify lowered its price to select users just days after Pandora's announced hike. Spotify announced on Tuesday that college students -- including two-year colleges and vocational schools -- could pay just $5 a month for its streaming service. It doubles to the $10 a month rate that everyone else pays after they graduate.

Spotify is an on-demand platform that lets users pick the tracks that they want to hear and create play lists. Pandora is a music discovery service that crunches algorithms to serve up tracks that it thinks you will like based on your initial input and listening habits. However, it's still interesting that the two services will be priced nearly identically for college students, even though the ability to single out tracks among Spotify's millions of selections would be seen by many as superior.

A cheaper Spotify for young listeners isn't Pandora's only problem. Apple (AAPL) introduced iTunes Radio in September, and it's a similar music discovery service that is free to use in its ad-supported form. Folks wanting to zap ads on iTunes Radio only need to pay $25 a year for iTunes Match.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple and Pandora Media. The Motley Fool owns shares of Amazon.com, Apple and Pandora Media. Try any of our newsletter services free for 30 days.

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