Seeking Alpha

Pandora (P -6.3%) slumps following reports Apple has struck an iRadio licensing deal with Warner...

Pandora (P -6.3%) slumps following reports Apple has struck an iRadio licensing deal with Warner Music, and is trying to wrap up deals in time to announce the service at the June 10-14 WWDC conference. Apple still reportedly needs a publishing rights deal with Universal Music (a recorded music deal is said to have been struck), and publishing and recorded music deals with Sony. Two things still working in Pandora's favor: the time invested by its users in creating custom stations (creates a switching cost), and the fact Apple's service is expected to only work on Apple hardware (many Pandora users rely on both Apple and non-Apple hardware). (previous)
From other sites
Comments (2)
  • DIgitalMediaView
    , contributor
    Comments (668) | Send Message
    Potentially more significant than the direct competitive pressure from iRadio may be the long-term impact on content costs. P was hoping to get relief in upcoming rate-setting negotiations with the government, but these details from Billboard regarding the Warner Music Group deal demonstrate the huge impact on P's content costs that this deal could potentially trigger. AAPL looks to be committing to increasing minimum per-stream rates by 33% on recorded music and over 100% on publishing. With the AAPL deal being the first major market-place precedent for a direct P competitor service, these economics will be Exhibit A in the music industry's case to press for a higher statutory rate.


    "The Recording Industry Association of America has been urging lawmakers to reject Pandora's petition to change the current method for setting royalty rates paid by Internet radio services, which roughly amounts to 0.12 cents per stream.
    "The agreement calls for two separate deals, one with Warner's labels and another with Warner/Chappell Music Inc., the company's publishing arm. Both were negotiated in parallel, an executive close to the talks said.
    "The recorded music deal calls for Apple to pay a per-stream rate of around 0.16 cents, similar to the rate Universal Music Group received. Like Universal, Warner also gets a percentage of ad revenue that would be generated by the Apple service, but payments would only begin after the service exceeds a certain audience threshold.
    "For the publishing deal, Warner/Chappell also negotiated an additional percentage of ad revenue that is more than twice the 4 percent rate paid by Pandora...
    "Earlier this year, Apple had sought a far lower royalty rate of 0.08 cents per stream, but with a chance to get a larger cut of the advertising revenue Apple would generate from the radio service. Record companies rejected the initial offer, saying Apple's terms would have put the labels in an awkward position of having to explain to Congress why that was acceptable for Apple, but not for other Internet radio services. So far, the deals with Warner and Universal avoid such a scenario."
    3 Jun 2013, 10:39 AM Reply Like
  • Dividend Monkey
    , contributor
    Comments (177) | Send Message
    I don't understand why people buy Pandora.


    1) No moat.
    2) Hostage to suppliers.
    3) A lot more well armed competitors
    4) Highly dependent on regulatory rules to make profit.
    5) Not selling profitable hardware/software that competitors will use to undercut Pandora's pricing and offering and thereby decrease Pandora's already razor thin margins..


    6) and a 2 billion dollar valuation...


    This is a company for speculation only. Spotify has a superior product. Apple will too. Typing in a couple radio stations is not exactly 'switching cost'. When the greater fool theory no longer works, this company will be $5 or less.
    3 Jun 2013, 07:19 PM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Screener: Search and filter by asset class, strategy, theme, performance, yield, and much more
ETF Performance: View ETF performance across key asset classes and investing themes
ETF Investing Guide: Learn how to build and manage a well-diversified, low cost ETF portfolio
ETF Selector: An explanation of how to select and use ETFs