1 Acquisition Apple Inc. (AAPL) Doesn’t Want to See: Samsung Buying Pandora Media Inc (P)

One way Samsung could try decreasing the first threat is to create some differentiation. For example, HTC has created its “Sense UI” to give it a different feel from other Android phones. Samsung has made its own Android changes, but there’s only so much change you can add to the stock Android experience.

Instead, a better use of Samsung’s money could be to invest in differentiation via the streaming-music trend. Consider that Pandora currently has a market value of $2.1 billion. Samsung could probably buy the company, even with a healthy premium for $3 billion. That would represent about 14% of the company’s profitability last year, and it has net cash of more than $21 billion in the bank to facilitate such a purchase.

The key idea would be that users gain tremendous value from streaming media, but the industry has lousy economics. Apple solved the puzzle by making music a complement to high-margin hardware sales. Samsung could do the same and in the process could further differentiate itself through having the most popular music-streaming platform in the United States. It’s a cagey move for a company with little potential on its own but huge potential as part of a platform.

A slam-dunk deal?
No such deal is imminent between Pandora and Samsung; this is purely my speculation on a deal that is extremely intriguing. It’s worth also noting that the complications of international copyright law means Pandora’s brand currently only holds value in the United States and has yet to expand internationally.

Yet the United States is also a market where Apple is strongest and Samsung could use more of a competitive edge. With the company paying out a whopping $12.2 billion in marketing expenses alone last year, Pandora’s recognition could be a huge edge in the marketing space. Eventually, the company could expand overseas if it chose to and fold Pandora into its Music Hub software.

Whether or not Samsung buys Pandora, this is a space where the standalone economics of start-ups pales in comparison with the value of being part of a larger platform. I’d expect to see some consolidation in the space this year, and it’ll be targeting Apple’s dominance over the music space.

The article 1 Acquisition Apple Doesn’t Want to See: Samsung Buying Pandora originally appeared on Fool.com and is written by Eric Bleeker, CFA.

Eric Bleeker, CFA, has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Amazon.com, Apple, and Google.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.