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Sirius XM Radio Inc (SIRI), Pandora Media Inc (P), Apple Inc. (AAPL): Where Does iTunes Radio Hurt Most?

Sirius XM Radio Inc (NASDAQ:SIRI)The music industry is a fragile space. It is one that has been transformed over the last decade, with Napster, Sirius XM Radio Inc (NASDAQ:SIRI)Pandora Media Inc (NYSE:P), and Apple Inc. (NASDAQ:AAPL) all leaving their footprint in its current state. However, the next wave of innovation has occurred with Apple’s entrance, and I see two companies that stand to lose the most.

The Emergence of iTunes Radio

We’ve talked about it for months, and although Apple Inc. (NASDAQ:AAPL)’s “iRadio” has been named “iTunes Radio,” the same function still exists. ITunes Radio is an ad-supported service that can also be purchased for $25 per-year. Its primary role is to act like Pandora’s smart function, learning the taste of listeners. The two differ because of iTunes Radio’s integration with iTunes, allowing the purchase of individual songs.

The service’s effect on Pandora Media Inc (NYSE:P) has been discussed for the better part of 2013. Apparently, the two services are very similar. Obviously, with much of Pandora’s volume coming from iOS devices, the introduction of Apple Inc. (NASDAQ:AAPL)’s iTunes Radio could be damning to Pandora’s growth.

During Pandora’s last quarter the company grew its mobile listeners by 47%. Moreover, the company is finally becoming efficient, as revenue climbed 101% year-over-year. Therefore, Pandora continues to be popular and has more than 200 million subscribers. Thus, it controls 7.33% of total U.S. radio listening.

Any time that one service controls more than 7% of a massive industry such as radio, you have to be concerned with upside potential. The iPhone was 18% of the smartphone market in Q1. Therefore, with Pandora also being offered on Android (74% of smartphones) and desktop, it is possible that iTunes Radio won’t deliver as big a blow as many anticipate.

Pandora Media Inc (NYSE:P) is trading almost $4 off its 52-week high and is coming off an exceptional quarter. While I do worry about Pandora’s upside in terms of market share, I also acknowledge that many companies have attempted to offer radio services (ie Nokia) and nothing (except Pandora) has stuck thus far.

Last year, Apple Inc. (NASDAQ:AAPL) released its maps service and it was less than stellar. Yet, pressure to compete in the space led them to release the product before it was ready. With iTunes Radio, I worry that Apple Inc. (NASDAQ:AAPL) is making the same mistake. Furthermore, Pandora Media Inc (NYSE:P) has a massive IP portfolio, leading me to wonder if Apple will find itself in additional IP lawsuits with Pandora. With that said, I am buying the proven growth of Pandora Media Inc (NYSE:P) and I am selling the idea that Apple’s new service will be a game changer, until proven otherwise.

A Curveball That Might Have an Impact

While we all expected a service to compete with Pandora Media Inc (NYSE:P), iOS in the car was a bit unexpected. The service will mirror iPhone content in-car displays, including music. This new service is “Siri” redesigned, as you can send iMessages, access maps, make phone calls, and then listen to music with voice control. Obviously, this will be integrated with the new iTunes Radio, as consumers can choose an artist and then create a play list of their favorite songs.

When the news was announced, shares of Sirius XM Radio Inc (NASDAQ:SIRI) slipped 2%. The reason is that Apple is preparing to make an entrance into a space dominated by Sirius.

Over the last three years, Sirius XM Radio Inc (NASDAQ:SIRI) has been the clearest beneficiary of the auto boom in the U.S. The company’s service is offered in most U.S. manufactured vehicles. Sirius XM Radio Inc (NASDAQ:SIRI) then offers a trial service in hopes of adding new subscribers.

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