Apple (AAPL) is moving towards entering the streaming-radio business, squeezing Pandora (P) into an even more difficult situation. The new Apple service will offer more flexibility to its listeners than Pandora, which limits listening options due to compulsory licensing agreements.
A new streaming-radio service by Apple will integrate with the iPhone, iPad, and iPod Touch. Apple is leveraging advertising in its negations with music labels allowing labels to receive a percentage of ad sales and advertise for their artist directly to listeners. This is all in an effort to grow Apple’s iAd mobile advertising platform and allow users to discover new songs, which will hopefully lead to more downloads on iTunes.
Analyst are already predicating that Apple’s radio product will be far superior to anything else on the market. Although Pandora has been the dominant player, new competition from Apple will surely have a huge impact on Pandora’s revenue.
Pandora has had trouble becoming profitable and currently operates with a negative operating margin. With a new competitor like Apple who can offer apps specifically designed to work for its existing products and offer more freedom to listeners, it is hard to see how Pandora will continue to grow with this new mammoth in the industry.
Written by Nick Sousa