Changing strategy to suit a saturated market
By Quantum Capital Fund
When a company operates in the market by itself or in the company of a single competitor, it can offer its products and services at prices that it wants to because the options in the market are limited. Of course this is the ideal situation which every company wants to find themselves in, but what happens when the market becomes saturated and there are a number of options which users can choose from? How does the company react in that situation?
This is the situation currently facing the music subscription industry. Where before the market was dominated by Pandora and Spotify, these companies are currently being joined by Apple which recently announced the imminent release of its iRadio service and there are significant rumors that Google is gearing itself towards launching a similar service.
Users will always be interested in a new service as it breathes fresh air into a otherwise stagnating market. It is therefore up to traditional dominators such as Pandora and Spotify to review their product strategy and to possible offer new services in order to outperform the competition.
Pandora has found a way in which to decrease the cost of its service by paying fewer royalty costs.
Technology website cnet.com reports that the company agreed to purchase KXMZ-FM, a Rapid City, S.D., terrestrial radio station. Its first foray into traditional radio broadcasting, the move has little to do with strategic shift and everything to do with royalty costs.
Cnet adds that Pandora pays two royalty streams, one for actual sound recordings and another to composers for publishing rights. The sound recording fees make up the lion's share of its content costs. But by buying a terrestrial station, Pandora piggybacks onto a settlement that gives better rates on that smaller fee stream. That's because a settlement last year put to rest a long dispute between radio operators and one of the big entities that represents publishers -- known as ASCAP -- by rolling back rates for terrestrial stations and their digital arms too. It let, for example, radio giant Clear Channel enjoy the lower rates at its iHeartRadio online offering because it had terrestrial stations as well.
However, Pandora is not likely to go on a spending spree making similar purchases.
This may pay off as users will have a free to air taste of what Pandora can offer. Through an effective marketing campaign, Pandora can direct these users to their online platform which is the company’s core business.