Bauer (one of the big European players) do this in various markets. You can stream the station (or listen to it on a radio) for free as you have always been able to and hear ads, or you can choose to pay about $4 per month (for all stations in the network, not per station) and receive a "Premium" version, where the ads are replaced by more music, and you can "skip" songs you don't like. It also gives access to a large number of additional playlists focused on sub-genres or specific artists or current events.
planetradio.co.uk
It works twofold - it allows Bauer to monetize listenership directly, and it also keeps listeners within the Bauer network. If you're normally a Magic listener, but you're in the mood for rock, do you go for a rival operator's rock station full of ads, or do you think "well, I'm paying for Bauer Premium, I'll tune into their rock station"? It's a no-brainer.
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It works twofold - it allows Bauer to monetize listenership directly, and it also keeps listeners within the Bauer network. If you're normally a Magic listener, but you're in the mood for rock, do you go for a rival operator's rock station full of ads, or do you think "well, I'm paying for Bauer Premium, I'll tune into their rock station"? It's a no-brainer.