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Will Apple Inc. (AAPL)’s iTunes Radio Launch Stop Pandora Media Inc (P)’s Growth?

Implications of the iTunes Radio

Pandora was already in a challenging market position before Apple Inc. (NASDAQ:AAPL)’s announcement. Could a new competitor have come at a worse time?

Even worse, this is not a startup. This is Apple Inc. (NASDAQ:AAPL), who already has 500 million users and a stable, ubiquitous payments ecosystem. The product is also very competitive. iTunes Radio will be quite similar to Pandora, including a free version with ads and an ad-free version. To make matters worse, the subscription fee for iTunes Radio ($24.99 per year) is lower than that for Pandora ($36 per year).

Galileo Russell from Seeking Alpha explains the implications in a very clear way: Imagine that only 5% of Pandora’s users shift to Apple’s service. This is about 3.5 million people and enough for Pandora Media Inc (NYSE:P)’s active listeners to decline sequentially.

Google Inc (NASDAQ:GOOG) also joins the game!

Not only Apple Inc. (NASDAQ:AAPL) is interested in a business with potentially lower royalty fees. Google Inc (NASDAQ:GOOG) just launched an on-demand music subscription service called “Google Play Music All Access” a month ago. It features millions of songs that you can play instantly, including recommendations and radio stations. However, its current fee of $9.99 per month (U.S. price) is much higher than what Pandora or Apple charge.

Since there is no “free version” here, Google’s new service may not become an imminent risk. It also seems that Google may be interested in something more than revenue. On-demand music services have become a critical part in any smartphone, and Google Inc (NASDAQ:GOOG) may be searching just to strengthen its presence on mobile devices by adding this feature to the Android .

The bottom line

Pandora Media Inc (NYSE:P) is the leader in Internet radio but it is not making money due to high royalty fees and its cost-inefficient way of adding more music to its database. Royalty fees may keep decreasing as online music streaming becomes more popular, but this is also an invitation to competitors. Although there are more than 30 competitors worldwide, Pandora should take special attention to Apple Inc. (NASDAQ:AAPL)’s iTunes Radio and the Google Play Music All Access service. These two products could have a strong negative effect on Pandora’s user growth and also potential future margins.

The article Will Apple’s iTunes Radio Launch Stop Pandora’s Growth? originally appeared on and is written by Adrian Campos.

Adrian Campos has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Adrian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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

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