When it comes to conquering new markets, Bob Pittman is a pro. Back in the late 1970s, he helped to create MTV, then during the 1990s, he was a key force in building AOL (NYSE:AOL). He then went on to start a venture capital firm, where some of his hits include Zynga, Thrillist and DailyCandy.
Interestingly enough, he still is only 57 years old. So hey, why not take on another big-time challenge? To this end, he took the role as chairman of media and entertainment platforms for Clear Channel Communications (he even invested in the company). He believes there is a big opportunity to leverage the traditional assets of radio stations to make a big play for the music streaming business. Keep in mind that through its radio stations Clear Channel has 237 million monthly listeners in the U.S.
At the core of the company’s digital push is iHeartRadio, which streams the music of more than 800 radio stations. So far, the mobile app has been downloaded more than 34 million times and serves about 50 million listening hours per month.
Now it looks like it will get a big boost. Just last week, iHeartRadio announced a deal with the Echo Nest to allow for customized stations. The company’s database has 5 billion items of information on things like musical styles, acoustics, mood levels and so on. This will be integrated into iHeartRadio’s library of 11 million titles — and access will be free until the end of 2011. To get the app, all you have to do is “Like” iHeartRadio’s Facebook page.
This is a direct assault on Pandora (NYSE:P), which is the current leader in the Internet radio space. iHeartRadio now has roughly the same type of service, but with multiples more songs in its database.
iHeartRadio also has the advantage of promoting the service across its huge footprint, and there will not be a need to immediately monetize revenues. After all, the traditional radio business still continues to generate substantial amounts of revenues.
True, Pandora has been able to grow at a rapid rate. In the latest quarter, revenue soared by 117% to $67 million, and the company made a profit, before items, of 2 cents a share.
Yet investors have been antsy. Since reaching a high of $26, the stock price has been on a scary ride. It is now trading at $10.12.
The valuation is still at a hefty $1.6 billion, or 8 times revenue. In light of the powerful features of iHeartRadio — as well as the competition from rivals like Spotify, RDIO, Apple (NASDAQ:AAPL
), Amazon (NASDAQ:AMZN) and even Facebook — it is going to be pretty tough to keep the stock price from falling even further.
Tom Taulli is the author of “All About Short Selling” and “All About Commodities.” You can also find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.
