Shares of Pandora Media Inc (NYSE:P) were obliterated on Monday, and for good reason. Reports indicated that Apple Inc. (NASDAQ:AAPL) is gearing up to unveil its long-rumored iRadio service at next week’s WWDC.
According to Bloomberg, the service will act as a Pandora clone, with deep iTunes integration. If that’s the case, it’s hard to envision Pandora’s long-term viability.
Apple’s iRadio said to be a Pandora clone
Various outlets, including The Wall Street Journal and The New York Times, independently reported that Apple Inc. (NASDAQ:AAPL)’s upcoming Internet radio service will be nearly identical to Pandora in terms of functionality.
That is, users will be able to stream songs for free directly through iTunes, based on particular artists or tracks. It will be ad supported, and won’t feature Spotify’s on demand streaming functionality.
If this is the case, it completely nullifies the defense offered by Pandora’s CEO Joe Kennedy. In recent years, Pandora’s list of competitors has slowly ballooned to include nearly a dozen alternative services.
Yet, Kennedy has been able to offer up a plausible argument: these aren’t competitors in a true sense. Services like Spotify and Rhapsody are about providing on demand music; Pandora is about the ultimate in Internet radio.
But with Apple entering the scene, that’s no longer the case. And Apple Inc. (NASDAQ:AAPL) isn’t just any competitor.
Pandora’s reliance on Apple’s customers
Pandora’s biggest audience continues to be on the mobile platform — tablets and smartphones. In the first quarter, 79% of total listener hours came from mobile devices. Given that Apple Inc. (NASDAQ:AAPL) owns about half the US smartphone market and a big chunk of the tablet market, a great deal of Pandora’s listeners are probably using an Apple iDevice.
And given that iTunes is a big part of iDevices, it’s likely that a great deal of Pandora listeners are also iTunes users.
So, to come full circle, why would someone on an Apple Inc. (NASDAQ:AAPL) device use Pandora when they can use a native application like iTunes for nearly identical functionality?
Unlike other forms of media, Internet music services are a zero-sum game. While a user might use different services with different functionality (say Spotify on their desktop, Pandora on mobile) there’s no reason to use more of one service with similar functionality. Someone with a Spotify account, for example, has no reason to also have a Google (NASDAQ:GOOG) All Access account. Likewise, an iRadio user would have seemingly no reason to also use Pandora.
In effect, a listener iRadio attracts is one listener that won’t use Pandora.
A bullish case for Pandora?