Online music streaming service Pandora (P) is still trying to remain relevant in a crowded space that now includes Apple (AAPL), Alphabet (GOOG, GOOGL), Amazon (AMZN) and Spotify.
It certainly needs to do something to get back in Wall Street’s good graces: Pandora stock is down about 26% this year, dramatically underperforming the roughly breakeven performance of the S&P 500 this year.
On Tuesday, Pandora announced its most recent effort to lure listeners, inking a deal with Warner/Chappell Music to license the publisher’s full catalog, expanding the universe of songs in Pandora’s rotation. It’s a noble concept, and if this were a youth sports league, Pandora would deserve a fancy ribbon for its efforts.
Unfortunately this isn’t a youth sports league, it’s the stock market — Pandora’s efforts are futile, and P stock is a dog.
Pandora Playing Catch-Up
Despite being early to the streaming music party, Pandora struggled to figure out the business model and economics that would ultimately become the most popular with consumers. Pandora stock soared all the same, jumping more than 400% between late 2012 and early 2014 as revenues grew more than 50% annually.
But as the market became crowded with big-name newcomers, P stock peaked in March 2014 and has been steadily selling off since.
The full details of yesterday’s agreement were not released, but it sounds like Pandora will gain access to a fuller catalog of artists, including Beyonce, Kendrick Lamar, Jay-Z’s Roc Nation and others, while paying Warner/Chappell a higher royalty for songwriters.
It sounds nice, but it won’t ever move the needle for P stock.
A far more interesting deal was struck last month, when Pandora bought $75 million of tech and IP from Rdio, which was going bankrupt. The IP will allow Pandora to offer more on-demand listening options, where users can choose specific songs or albums to play.
Currently Pandora just lets you “start your own radio station,” which randomly plays songs by similar artists with similar sounds. You can skip or “thumbs down” a track you don’t like, and Pandora will improve its prediction skills. But still, you can’t pick the exact song you want to hear, and you can’t replay songs.
Pandora’s goal is to leverage its new on-demand music streaming capabilities to create a new price tier. Currently, there’s a free, ad-supported version, and an ad-free, $4.99/mo. version. The on-demand option will doubtlessly be the most expensive tier when it goes live in late 2016. If it prices competitively, it will run $9.99/mo. or less.
Frankly, this should’ve been an option years ago, and I fear it’s simply too little too late for Pandora stock. Much of the company’s fate will actually be determined this afternoon, when the Copyright Royalty Board decides on the rates Pandora will pay songwriters, labels and artists for the next five years.
With Apple Music and Spotify both firmly entrenched in the on-demand streaming music biz already, Pandora is facing an uphill battle against consumer trends either way.
As of this writing, John Divine was long AAPL stock and AMZN stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
