Editor’s note: This article was written before Google’s announcement of All Access today. The service will charge $9.99 per month, and will give all users a 30-day free trial.
Pandora Media Inc (NYSE:P) has shown strong performance YTD as its share price has appreciated roughly 65% since Jan. 1. Investors have been drawn to its strong performance in FY 2013, its positive forward-looking projections, and the rebound in the music industry, which is evidenced by the 9% increase last year in digital music sales and a corresponding 26% decrease in pirated music downloads. Streaming services like Pandora Media Inc (NYSE:P) and Spotify have widely been credited for this boost in legal music distribution. Pandora is also attracting more and more listeners to its service, as CEO Joseph Kennedy stated in the latest earnings call,
Total listener hours for the quarter grew 53% year-over-year, exceeding 4 billion for the quarter, compared to 2.66 billion in the same quarter last year. For the fiscal year ended 2013, total listener hours grew 70% year-over-year, exceeding 14 billion compared to 8.2 billion in fiscal year 2012.
Pandora Media Inc (NYSE:P) is also on its way to owning 9% of the market share of all U.S radio, and currently has captured 70% of the internet radio market share. Pandora shows promise and potential, as investors eagerly await the next earnings report, scheduled for May 23, expecting (and hoping) to see the company show increased revenues. Pandora Media Inc (NYSE:P) currently has a negative EPS of -$0.23, but analyst estimates have pegged it with an improved EPS of -$0.10 next quarter and a positive EPS of $0.19 going into 2014.
So, while Pandora shows nice upside, it’s important to account for the competition that it will be facing, which could be considerably more by the end of the year. Both Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG) are looking to enter the arena of online streaming music. Apple’s iRadio and Google Play’s streaming app could be seen on the market within the next 3 months as both companies have their sights set on a summer release. Since they are such tight competitors, you can expect that Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG) will be fighting for who gets its respective service to market soonest.
Apple recently hit a wall in its negotiations for iRadio’s licensing agreements. The thing is, Apple Inc. (NASDAQ:AAPL) wants to pay less in royalties than everybody else. While Pandora Media Inc (NYSE:P) pays 12 cents for every 100 tracks played and the streaming service Spotify pays 35 cents for every 100 tracks played, Apple wants to enter into agreements paying 6 cents per 100 tracks played. Apparently, Universal Music Group rebuffed that offer and wants Apple Inc. (NASDAQ:AAPL) to pay something more in line with the established industry average (interestingly enough, Pandora shares rose 5% the day that news of the negotiating snag hit the wire). Music labels still remember what happened when they made licensing agreements with Apple a dozen years ago with iTunes: music downloads soared and Apple Inc. (NASDAQ:AAPL) made a ton of money, but the labels have seen declining revenues ever since. They don’t want to get swindled here and lower the bar for the rest of the streaming services that will want to pay less if Apple gets a good deal.
As for Google Inc (NASDAQ:GOOG), its upcoming streaming service will reportedly charge $1.99 per month per channel, with a variety of about 50 channels, and includes plans to bundle subscriptions with advertisement-free YouTube service. Google Inc (NASDAQ:GOOG) is further along than Apple is with regards to licensing agreements as they have already come to terms with Universal Music Group and several other record companies, but questions do still remain regarding what type of royalties it will surrender to ensure ad-free YouTube access to subscribers, which may come in the form of revenue-sharing instead of a flat rate. If Google Inc (NASDAQ:GOOG) can pull off the YouTube bundle, it would certainly give the company a leg up on other paid streaming services like Spotify.
Google and Apple each have ambitious plans for music streaming. However, they have a lot of catching up to do if they want to displace Pandora. Not only does Pandora already have its subscriber base well-established, but they also have been working with car manufacturers for years now to get Pandora service built into automobiles. Since a significant portion of all radio listening occurs within the walls of a moving car, this gives Pandora a huge advantage over any competitors such as Apple or Google who are just entering the market.
The effects that iRadio and Google Play’s streaming app will have on Pandora probably won’t show up on the company’s financial statements for a while. This is a competition that will unfold and tighten up in the next 2-3 years, but, until then, Pandora has a considerable advantage over new competitors and will likely continue to grow.
The article Will Pandora Be Able To Withstand Upcoming Heavy Competition? originally appeared on Fool.com and is written by Michael Gregg.
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