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Two Superstar Musicians Are Working on Yet Another Pandora Media Inc (P) Competitor

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Dr. Dre and Trent Reznor are currently working on yet another streaming music service. The project, codenamed Daisy, promises Spotify-like on-demand music with Pandora Media Inc (NYSE:P)-like curation.

Daisy is due out sometime in 2013. With Google having just released its own service, and Apple Inc. (NASDAQ:AAPL) widely rumored to have one in the works, I continue to wonder why anyone would remain invested in Pandora.

Pandora Media Inc (NYSE:P)

Dr. Dre’s business acumen

Although it’s hard to criticize Dr. Dre’s music career, he might actually be a far better businessman than rapper. Beats Electronics/Beats by Dre has become a force to be reckoned with in consumer electronics; and though it isn’t publicly traded, it has definitely impacted some stocks.

Take Skullcandy Inc (NASDAQ:SKUL). The headphone-maker went public in the summer of 2011. Since then, shares have pretty much gone in one direction: down.

Since going public, Skullcandy Inc (NASDAQ:SKUL) shares have fallen over 70%, and might be even lower if it wasn’t for persistent acquisition rumors.

Beats by Dre might be part of the reason Skullcandy Inc (NASDAQ:SKUL)’s had such horrendous performance. On the last earnings call, Skullcandy’s founder called Dre a “brilliant guy” and that he had “nailed it” with his product. Still, he distanced his company from Dre’s by noting that Skullcandy’s offerings are often much cheaper. But with Dre keeping the high-end, high-margin market on lock down, it limits Skullcandy’s options.

There’s also Dre’s tie-in with Hewlett-Packard Company (NYSE:HPQ) and Chrysler. Since 2009, Hewlett-Packard Company (NYSE:HPQ) has been using the “Beats by Dre” labeling to differentiate its lineup of PCs and tablets; Chrysler has begun to do the same with its cars.

Clearly, Dre’s name can move products — Daisy will likely be no different.

Trent Reznor’s creative genius

Reznor’s band, Nine Inch Nails, has been one of the most successful music acts over the last two decades. But alongside Nine Inch Nails, Reznor has consistently branched out into other projects, such as video games and movie soundtracks.

He’s now serving as the Chief Creative Officer for Daisy. In an interview with The Guardian, he revealed his contribution to the product: a system of intelligent, human-guided curation to supplement machine algorithms.

This is where Daisy could represent the biggest threat to Pandora. The Internet-streaming radio giant prides itself on providing an excellent radio experience powered by its phenomenal music curating algorithms.

If Daisy can offer something equally as amazing, or even better, it could represent a significant competitive threat. The music industry might also be more supportive, as one can imagine the power such a system could offer to up-and-coming bands (“here are some new rappers Dr. Dre recommends”).

An Apple tie-in?

Various reports have indicated that Dre’s other partner on the project, Jimmy Iovine, sat down with Apple’s CEO Tim Cook back in March. Apple has long been rumored to be working on its own streaming music service, but Daisy integration might make sense.

After all, Apple has been willing to integrate other company’s services into its products in the past, notably Facebook Inc (NASDAQ:FB), Twitter and Yelp. Daisy integration, if exclusive, could be a big differentiator for the iPhone-maker.

I’ve written that I believe streaming music services pose a long-term threat to Apple’s business. iTunes functions as a way to keep people tied into Apple’s ecosystem — someone with a large iTunes library isn’t likely to leave.

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