A couple of weeks ago, I discussed the latest news in the world of online music streaming, and how Apple Inc. (NASDAQ:AAPL) was gearing up to offer a service similar to Pandora Media Inc (NYSE:P)’s . Since then, there have been significant moves for both companies in the market, and the recent news has favored Apple, which sent Pandora’s stock sliding on June 3. People are already applauding Apple’s radio service, but as is typical in the tech world, Pandora is coming right back.
Earlier this week, Apple Inc. (NASDAQ:AAPL), in its quest to enter the streaming music business currently dominated by Spotify and Pandora Media Inc (NYSE:P), announced that it has made a deal with Warner Music Group to carry records over its new radio service. As part of the deal, Apple will give 10% of ad revenue to Warner’s publishing wing, nearly double what Pandora offers to its labels. The lucrative deal with Warner helped Apple in its other successful deal with Sony Music Entertainment on June 7, owing to Apple’s strong relationship with the industry thanks to its iTunes franchise. This gives Apple a distinct advantage in the market as it tries to make up for Pandora’s long-standing dominance and large fan base.
Needless to say, the latest news that Apple Inc. (NASDAQ:AAPL) is closer to a radio service caught investors’ attention, and caused a hiccup for Pandora Media Inc (NYSE:P). Pandora’s share price fell 11% on June 3 upon the news, and has kept falling, though at a flatter rate as the week went on. This should be expected when a titan like Apple gets into any new sector of the industry, and some get worried that smaller competitors will fall by the wayside.
However, Pandora Media Inc (NYSE:P) isn’t just an ordinary company; it is capable of innovation just like Apple Inc. (NASDAQ:AAPL). On June 5, Pandora responded by announcing a TV streaming music service on Internet Explorer through the Xbox 360. This new medium, according to a company press release, will enable customers to download Pandora on their game consoles, or through other streaming services, so that music can be listened to in the living room without the need for a computer. According to the company, over 10 million customers listen to music through computer streaming, so the shift to televisions should be a logical next step for the company. Also important, since it is over a Microsoft provided network initially, it seems unlikely that Apple would follow into that realm without paying big money to its long-standing rival – which has its own Zune streaming service it wants to protect.
Pandora Media Inc (NYSE:P)’s customer base has shown how lucrative the market is for online streaming. Listener hours have jumped 35% since last year, while U.S. radio listeners have climbed 7.33%. These numbers show not only strong growth, but also that Pandora is a strong company. Adding in the TV listening service should boost listening hours among Pandora’s customers, as well as increase exposure for advertisers. Pandora may not pay as much in royalties as Apple Inc. (NASDAQ:AAPL), but the diversity of mediums that its large listener base has access to could offset Apple’s advantage in relationships with major labels like Warner and Sony.
Some analysts are predicting that in the short-term, Pandora Media Inc (NYSE:P) will see a bit of a hit in its stock price as well as in its customer base, as some will be willing to give Apple Inc. (NASDAQ:AAPL)’s service a test run, though very few expect there to be many Pandora converts. Apple’s music services have over 400 million users, twice the number Pandora has, so there isn’t much urgency for Apple to win converts given its massive ecosystem.
This may be a good thing for both companies because both can be very successful without having to headhunt. Despite a bad week for Pandora Media Inc (NYSE:P), analysts have not changed their opinions on Pandora’s long-term profitability, with many still considering it a buy, maybe even a better buy now given the recent slide in its price. One analyst, Andy Hargreaves of Pacific Growth Equities, says there is “plenty of room for more than one online music service,” which has been proven already with the success of Pandora and Spotify up to this point.
Pandora’s lack of profitability and its low sales of advertising are still worries for me, though the expansion into set box streaming is a great way to help out with the advertising problems, since it is a new medium. Apple Inc. (NASDAQ:AAPL)’s streaming service will be attractive simply because it’s Apple and there are many loyal customers that will use the streaming service without a second thought, but Pandora Media Inc (NYSE:P) is the veteran provider. This is a big advantage because Pandora has a loyal fan base that will keep advertisers happy. Record labels will worry about royalty payments, but the wide breadth of ways to listen to Pandora should yield good returns for them.
Pandora is a good company. It will take a bit of a whack when Apple Inc. (NASDAQ:AAPL) rolls out the streaming service for good, but this will be short-term. Indeed, Pandora Media Inc (NYSE:P) will be around for a while, and given that the analysts aren’t predicting doom and gloom, investors shouldn’t either.
John McKenna has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple.
The article With Pandora, Keep Calm and Carry On originally appeared on Fool.com.
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