By Relmor Demitrius
Why isn’t Pandora (P) competition for radio? Because it isn't radio. Okay, I may buy that, you say, but then define what is radio to you, then? Fair enough. Since the definition is of a more standard noun variety in the dictionary, I will simply attempt to identify the sector.
Take for example Sirius XM (SIRI). Since it is a tradable equity, and I cover Sirius XM, I will use it as an example and identify what the company is, in what space it competes, and who exactly are the competition in relation to its business. As it is generally accepted that terrestrial radio is competition for Sirius XM, by association Sirius XM competes with generally the entire radio industry and the best qualities it has to offer.
In the past, Sirius XM has been categorized as a technology company by some. Lately it has been considered more of a media company, in the broadcast entertainment field more specifically. It has its own content and redistributes third-party content as well. So yes, it's a media company by definition.
SIRI also generates unique content and “distributes” some forms of communication, news, or public service. It broadcasts a product that is in several ways interactive with the audience. DJs, content, live interviews, and live call-in shows make this company an interactive media company.
It's also a radio company in the broadcast space that delivers content via smart phone, internet, and of course a satellite receiver network. This makes it unique in its industry, but that is a minor point here.
The dictionary defines media as such: "The means of communication such as radio and television, newspapers, and magazines, that reach or influence people widely.” Even by this basic definition, Pandora does not qualify as competition. One important aspect of a media company is indeed the ability to communicate. When I discuss Pandora with investors, they have a hard time understanding this concept. I’m not exactly sure why, but it’s an important element of a media company.
Pandora is simply a random music generator with no original content and no verbal interaction with live people in any way and, as such, does not qualify as a media company. It bills itself as such, but is foolish to do so. It's an internet company and an entertainment company, but can it report the news, give news updates or the weather? Can you receive data services from Pandora? Can you call in to your favorite show and ask about that song you just heard? Can you even hear a concert?
I would compare Pandora to an online jukebox you have less control over. I would prefer a service like Rhapsody over Pandora, as it’s more personal and direct to what I want. If I choose an artist on Pandora, I may only hear her a few times until I have to move on to other things, get out of my car, or deal with kids. In those few plays, I may not even hear a song I like by her. If I have Rhapsody or a similar service, I can directly put on whatever song I want at any time.
I would think Pandora is more competition to the iPod (AAPL) and Rhapsody, Spotify and for sure Slacker than Sirius XM or I heart Radio (which is actual radio, just terrestrial radio stations). I think it is actually amusing to hear Pandora supporters plead their case as competition to radio. You can say it all you want, but Pandora just isn’t competition and never will be with its current product and model.
The iPod is considered competition by Sirius XM in its filings. Why do I mention this? Because Pandora cult members always point to that as proof that indeed P is competition. If that were true, then the iPod would have had an effect on Sirius XM by now, as it’s been around for about 10 years at this point. Media members would be saying Apple is a competitor to Sirius XM. They aren’t, because the iPod isn’t competition for Sirius XM.
It was beneficial for Sirius XM, especially when trying to convince the FCC to allow the merger, to argue that there was significant competition in the space. SIRI did list the iPod as one such competitor and a risk to its business. It also listed HD radio, which should be disappearing off the face of the planet any day now. If you want to look at numbers and compare them too, we can. But I already wrote that article.
Another argument is that to ignore a potential competitor is a foolish move as an investor. I agree; I never ignore my competition. Right now, Sirius XM’s only competition is showing the world that its product has tremendous value at its current price. Until I see a radio or media company offer a similar service, I will continue to sleep very well at night as a listener and stockholder.
Some may argue that I don’t know the future and can’t be sure that one day Pandora won’t be bigger than Sirius XM. That's true; I don’t know that -- but I invest on facts and trends, not hopes and dreams. If one day the world wakes up and no longer needs or wants radio but demands a jukebox, then Pandora stockholders will be very happy.
Disclosure: Long SIRI