It’s a model that is as-yet unmatched in the streaming-radio market. Apps like Spotify and iHeartRadio have given it a try, but Pandora Media Inc (NYSE:P) boasts 200 million registered users, 100 million of which have joined in the past two years.
Commercial breaks
Until recently, however, “success” for streaming radio businesses meant simply losing less revenue each year than competitors. With the majority of online streaming customers choosing the free version of services rather than paying a monthly subscription fee for less/no ads and unlimited listening, Pandora and its competitors have had to rely on ad revenue.
The cost of providing uninterrupted, high-quality streaming service to hundreds of millions of users is difficult to offset by ads without negatively impacting the listening experience. Pandora Media Inc (NYSE:P) has, so far, done a good job of working ads in without bombarding listeners with ads, but it comes at a cost: Pandora lost $28.6 million in the first quarter of 2013, which was $8.6 million more than it lost in the same quarter in 2012.
Revenue for Pandora Media Inc (NYSE:P) is up, however, with the company raking in $125.5 million in revenue in the first quarter, up 55% from last year at the same time. Pandora Media Inc (NYSE:P) now holds 7.7% of the U.S. radio listening market, notable since Internet radio has always struggled to compete with traditional listening. Last year at this time, Pandora only had 5.86% of the radio-listening market.
Trouble may loom for the company, however, as Google and Apple are both headed into streaming radio. Google has already started, releasing its Google Play Music All Access earlier this month. For $9.99 a month, listeners can access music in their Google Play locker alongside songs available for streaming–Google is said to be working with three major music labels to ensure users have access to the best songs.
Meanwhile Apple’s iRadio is rumored to have hit a few snags on its way to release. The problem appears to be an issue between Apple and Sony over licensing fees for songs that listeners skip halfway through. The company is expected to launch iRadio at the June developers conference, but with money issues lingering, analysts are predicting a possible delay.
Traditional radio competes
While Google and Apple are on the horizon, Pandora also faces competition from the very media company that controls the airwaves. Clear Channel Outdoor Holdings, Inc. (NYSE:CCO), operator of 1200 major radio stations across the country, has made serious strides with its iHeartRadio. What sets iHeartRadio apart from Pandora Media Inc (NYSE:P) is that it allows consumers to listen to the same radio stations they listen to in their cars and homes through a smartphone or computer.
Like Clear Channel Outdoor Holdings, Inc. (NYSE:CCO)’s 1200 stations, though, iHeartRadio is ad-heavy, with a long commercial break after only a couple of songs. Pandora, on the other hand, has shorter commercial breaks far less often than both iHeartRadio and traditional radio.
All those ads aren’t translating to success for Clear Channel Outdoor Holdings, Inc. (NYSE:CCO), with the company reporting $12.9 million in operating costs for its media division for last year’s third quarter. To offset that loss, the company has to rake in more than the $1.34 billion it earned in its most recent quarter. The company works hard to offset its cost by hosting regular concerts featuring today’s biggest acts, which not only brings in revenue through ticket sales but helps promote the iHeartRadio brand in a big way.
Listen everywhere
Traditional radio’s original competitor, Sirius XM Radio Inc (NASDAQ:SIRI), works hard to take on both Pandora Media Inc (NYSE:P) and Clear Channel by offering listeners the same access whether they’re listening on a car stereo or an iPhone. For $15-$18 a month, members have access to 140-155 stations with ad-free listening.
Sirius XM Radio Inc (NASDAQ:SIRI)’s subscriber base is growing, with the company reporting first-quarter earnings of $897.4 million. This is in part due to the company’s practice of roping customers in by providing its service in new and used cars for a free trial period. During this trial, some customers become hooked on the service and choose to pay to continue it once the trial period is up.
All three companies are enjoying growth as consumers become more comfortable with the concept of listening to radio on smartphones and tablets. As bluetooth technology continues to become more prevalent in cars, chances are even more consumers will switch to streaming radio options, taking radio stations with them from home to car to work for uninterrupted listening.
The article Pandora’s Music Service Still Beats All Others originally appeared on Fool.com and is written by Stephanie Faris.
Stephanie Faris has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Stephanie is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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