Nerves jangle at Pandora as Apple moves into internet radio business
Apple is going into the internet radio business. Users of iTunes will soon will be able to create their own virtual "radio stations" built around artists from Bob Dylan to Lady Gaga.
Pandora: Challenge from Apple
Pandora shares dropped 17 per cent as it was reported that Apple was in talks to license music for a custom-radio service similar to theirs.
Users of Pandora, Spotify, Sony Music and iHeartRadio can already stream songs.
But Apple may have an advantage over its rivals, said the Wall Street Journal: it doesn't have to make money from the service. A large chunk of cash will come from the sale of gadgets like the iPod.
Steve Jobs "pioneered the legitimate online music business," said the WSJ but always said Apple could rely on the strength of iPods and other high-priced gadgets to offset song sales, which were minimally profitable.
Spotify and its competitors all charge around $10 a month for the ability to listen to unlimited amounts of music on smartphones or computers.
"We all have the same content, we all have the same deals," said Sony's Michael Aragon"It's going to be a brutal business and there's probably going to be some consolidation."
Rhapsody last year acquired Napster, the struggling rival that borrowed the nameof the earlier illegal file-sharing service .
Apple has treated music as a loss-leader to drive hardware salesof its profitable hardware since 2003 when Jobs told analysts music downloads were "not a moneymaker" for his company. He rubbished business prospects for rival online music services, since "they don't make iPods."
Spotify has since become the second-largest online revenue source in Europe for major labels, behind the iTunes Store, and has passed iTunes in Sweden.
Pandora said its revenue rose 51%, to $101.3 million in its most recent quarter, most from selling ads that play on its custom online radio service.
But the cost of licensing the music rose 79%, to $60.5 million, nearly tripling the company's quarterly loss.
Commenting on Apple's move, Richard Tullo, an analyst with Albert Fried & Co, told the WSJ, " The 800-pound gorilla is pounding his chest, and people are starting to get nervous."
Pandora, which went public last summer, is a market leader in advertising-supported Internet radio. Users build "stations" that stream various songs based on selected artists. But each additional user adds more royalty fees - paid every time he or she streams a song.