Apple Eyes Pandora’s Turf; Investors Flee

WSJ reports that Apple is working on a streaming music service

   

Apple (NASDAQ:AAPL) is getting ready to mess with the music business once again.

The Wall Street Journal has reported that Apple is planning to create a streaming music service that would compete against the likes of Pandora (NYSE:P).

Naturally, whenever Apple is involved, you have the possibility of a game-changer — and Pandora investors are fearing exactly that, with P shares off 19% in midday trading.

However, don’t expect a service to hit the market anytime soon. Apple apparently is in the early stages of negotiations with major recording labels. While the company certainly has lots of experience with the process, it still should take months to get agreements in place.

Apple’s approach is different from Pandora’s. Pandora uses the same system that traditional radio companies use for licensing, which are based on royalty rates set by federal guidelines, but there are limitations on the frequency with which a song can be played.

Apple also has some other key advantages. One is its massive cloud infrastructure, which already powers the fast-growing iCloud service. AAPL also has the resources to promote a new music service not just through commercials, but through in-store promotions and cross-marketing of its 400+ million iTunes customers (for perspective, Pandora has 54.9 million users).

The company also has its own mobile ad network, iAd, which will be key in monetizing a music service.

Operators like Pandora aren’t wholly without hope. After all, Apple probably will not create a service compatible with Google’s (NASDAQ:GOOG) Android operating system, which itself includes 400 million devices and is growing at a rate of 1.3 activations per day.

But the iOS platform looks like a non-Apple wasteland. Ever so loyal, Apple users inevitably will gravitate to the company’s own service, which probably will have better features and integration.

While often thought of as an innovator, Apple throughout its history has generally been late with new technologies. Instead, it waits for a market to evolve, then sees if there’s an opportunity to enter.

In light of the huge success of companies like Pandora, iHeartRadio and Spotify, the music streaming business is a real opportunity, and the time must be right for Apple to make a big play for it.

But that’s little comfort for Pandora shareholders.

Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/ipo-playbook/apple-eyes-pandoras-turf-investors-flee/.

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