News today has begun to surface that Apple (AAPL) is in the early stages of negotiations with record labels to launch a radio service that will be similar to Pandora's (P). The news sent a virtual shockwave to Pandora and sent the equity tumbling as much as 20% in early trading. Sirius XM (SIRI), which is in the midst of losing control to Liberty Media (LMCA), saw very little movement in its stock price.
The first thing Sirius XM and Pandora investors should understand is that this is still in the rumor stage. The next thing to understand is that there is a lot of room in the audio entertainment space for these companies to do well.
While there is little detail as yet, the rumor seems to be that Apple will have a advertising-supported model, which will add yet more ad inventory to an already competitive environment. If this is indeed the case, it will strain Pandora.
Remember all those rumors of a satellite radio chip in an iPhone? The concept sounded great to satellite radio fans, but the facts were that Sirius XM needed Apple much more than Apple needed Sirius XM. Back then I said it was unlikely, and now it seems even more unlikely, at least in the near term. There are a few reasons to do it from both the Apple and Sirius XM perspective. Apps now can now deliver Sirius XM, Pandora, Spotify, Slacker, and more.
When Samsung recently announced its radio service I saw little threat from it for the likes of Pandora and Sirius XM. Nokia announced a service as well, and again, I saw little threat. Apple, however, is another story.
If you thought fans of Sirius XM were passionate, you have not seen anything when you consider the fans of Apple. Apple fans are almost loyal to a fault. Many stay exclusive to Apple even when a less expensive option is available. Further, Apple has the ability to integrate its radio service into devices, and make the Apple iTunes experience even more seamless.
Apple getting into the radio business is a scary thought for SIRI and P investors. With billions in cash at Apple's disposal, it is only really a question of how badly Apple wants to be in the space, and whether or not it wants to dominate it. The other scary concept is that Apple jumping into the radio pond could bring in other players, such as Google (GOOG), another giant with wads of cash.
One key advantage Sirius XM has is a wealth of exclusive non-music content. It is likely enough to keep many competitors at bay. Another key is the relationship Sirius XM has with the auto industry. With satellite radio installed into about 65% of all new cars, and promotional subscriptions that come standard, consumers are treated to a huge library of content that other services can not match.
One key move Sirius XM needs to make is to get its satellite radio 2.0 initiative completely rolled out. The sooner this happens, the better. This value added aspect of Sirius XM will keep the subscriptions more sticky, and offer a more competitive interactive service.
If anyone thought that satellite radio was a monopoly, they should think again. This space is getting more and more crowded.