Apple: Pandora's Achilles' Heel?

| About: Pandora Media (P)

It seems like Apple Inc. (NASDAQ:AAPL) can enter any market it pleases nowadays. First it was computers, then phones, MP3 players and TVs; what else is left, radio? On September 6th, the Wall Street Journal featured an article about how Apple plans to compete with the internet radio service Pandora Media (NYSE:P).

Since having launched iTunes over 10 years ago in 2001, Apple is certainly no stranger to the music industry. Today iTunes is used for downloading, saving, and organizing digital music and video files on desktop or laptop personal computers. It can also manage content on the many devices Apple has so ingeniously delivered over the years.

During this time, Apple has forged strong relationships with music companies. Back in 2001, music company executives agreed to participate in iTunes as a last ditch effort to battle illegal downloading, which was running rampant on the internet and killing profits. Everyone was "sharing" music at the time, forcing music companies to take action. This last hope turned out to be a success, as iTunes is now credited with over 10 billion music downloads. Some even say iTunes saved the music industry as well as internet based music as we know it. With such a history with music companies, Apple may have its "foot in the door" when licensing with record labels. However, there is a company already performing well in the music radio space: Pandora Media.

Today, Pandora Media is one of the more popular music radio companies. They have over 150 million registered U.S. users, with 100 million of them accessing the streaming music service using a mobile device. In fact, according to Pandora's FQ2 results reported on August 29th, mobile revenue increased 86% Y/Y. In addition, Pandora's President and CEO Joe Kennedy, recently stated that more than 70 percent of Pandora listening hours now take place on mobile or other connected devices. "The phone is always with you, and that changes lots of things," Kennedy said. He added that Pandora is also available across 18 automotive brands and in 48 current vehicle models. "All automakers are rolling out Pandora integrations into their vehicles moving forward," Kennedy said.Source

Sounds like Pandora has a good handle on this market, right? Not really. Pandora's market share of total U.S. radio listening is still only 5.95%, an increase from 3.11% a year ago. Although growing its presence, Pandora still has a ways to go. There is no doubt that Sirius XM Radio Inc. (NASDAQ:SIRI) has a considerable share, as well as terrestrial radio for that matter.

I feel Apple's strong history with music companies is a hidden strength that should be respected. Moreover, with its cash hoard approaching $200 billion, and with millions of mobile Apple devices in the hands of consumers, entering the mobile music radio space is an opportunity at Tim Cook's fingertips. In time, more facts will unfold about Apple's true intentions regarding the music radio market. Until then, Pandora should continue with its organic growth and grow its customer base. However, if Apple ever gets serious about competing with Pandora, I think we all know who will win that fight.

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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