Pandora Media Inc (NYSE:P) announced earlier this quarter that it is putting a cap on the amount of time that their listeners can stream music on their mobile devices. At 40 hours a month, this affects a very small portion of their clientele. However, moves like this are signs of a much larger trend: Pandora’s business model is slowly eroding and beginning to mimic that of Spotify.
Pandora Media Inc (NYSE:P)’s biggest threat
A little over a year ago, Swedish music streaming service Spotify began operating in the U.S. Since then, they have grown at a rate that rivals the early days of Facebook Inc (NASDAQ:FB). This is less than a coincidence. Sean Parker, who served as the first president of Facebook Inc (NASDAQ:FB) and is an old friend of Mark Zuckerberg, joined the Spotify team as an investor and board member in 2010, and a strategic alliance with his former employer was announced later that year.
This not only facilitated Spotify’s viral growth in the U.S., but it has enhanced the service tremendously. Spotify and Facebook have come together to make sharing music easy, and thanks to the contracts that Sean Parker negotiated with major record labels, Spotify has a massive catalog for users to choose from.
Unlike the other spam-apps that clutter the newsfeed, Spotify’s feed has been embraced by Facebook users. Most people don’t want their friends and family to know that they spent fifteen hours playing Farmville, but people define themselves by their taste in music, and the songs they listen to on Spotify have become an integral part of many Facebook profiles. Pretentious hipsters, thirteen year old Glee fans, and everyone in between has been warming up to the idea of displaying the music they listen to, as they listen to it, on Facebook.
But is Spotify really in competition with Pandora? Tim Westergren, Co-founder of Pandora Media Inc (NYSE:P) and Chief Strategy Officer, doesn’t seem to think so. In response to investor worries, Tim Westergren has repeatedly stated that he believes Pandora operates in a completely different segment than Spotify. Yet, people use both services on the same devices in the same settings, and for the same purpose — to listen, explore, and discover music.
Spotify even offers a radio feature that operates in a similar, and not necessarily less effective way to Pandora Media Inc (NYSE:P). They both depend on a mix of subscription and advertising revenue, and are both popular among the same demographics. To be frank, if these companies aren’t competitors, I don’t know who is.