Until recently, Pandora was almost unnoticed by Canadians, maybe due in part to the lack of access we get, but when it was announced last week that Pandora Radio was in panic mode, two questions came to mind: why would anyone go somewhere other than JazzRadio.com for music, and what is Pandora?
For people who live outside the United States, a quick tune-in: Pandora Radio was created in 2000 during the pre-iTunes era. It works by fragmenting people’s listening habits, using their activity and manually selected likes and dislikes to create a radio station specific to that person’s tastes. For instance, if you listen to Jack Johnson, it might suggest John Mayer; you’d hear Free Falling, decide that he’s almost as good as Tom Petty, and ‘like’ what you heard. It uses everything you submit to make your radio station your way, making Pandora Radio the Burger King of Internet listening (albeit with a slightly less-creepy mascot).
And then, Apple spoke up.
According to Bloomberg.com, Apple has engaged in talks with Warner Music Group and Sony (amongst other major recording labels) to create a radio service for 2013. As soon as the report was leaked on October 25, Pandora’s stocks dropped 12 percent, and for good reason: Apple services 155 countries worldwide and has more than 400 million registered iTunes accounts. Also, while Pandora has to restrict artist availability and often prohibits people from skipping songs, Apple has the resources to fix both issues.
Imagine creating a website that simulates brilliant cooking recipes, from people’s submissions as well as from other websites. First, this needs to exist – please contact me when it does. Now, imagine that Google starts talks to create exactly the same thing, calling it Google Chef. Would anyone buy shares to your website? Not cool, Google. Not cool.
Back to Apple, their purpose of meeting with these labels was to discuss how to split ad revenue, implying they already have Apple Radio ready to go. With this in mind, we should expect AR to launch by the expected date, putting more pressure on Pandora radio. On a side note, stocks for Pandora are currently around $8.50 per share, whereas Apple falls in at about $609.
Where will digital radio stand a year from now?
To start, Apple will probably succeed with their radio project. Admittedly, IOS Maps was a complete and utter failure, as Apple admits. The last major mistake Apple made was with the button-less iPod shuffle, in ’09, and the mobileme in ‘08. Before that? The Newton was supposed to be the first iPhone in 1993, and given the iPhone’s actual release in 2007, it didn’t work out at all. Point being, Apple does mess up here and there, but no one would bet on it.
Assuming the release of Apple Radio goes ahead without a hitch, Pandora is basically terminal, and will be defunct by this time next year, barring some sort of miracle. Apple can bring their prices down to below Pandora’s (currently $36 a year), and were every Apple account to sign up with their radio at $30, they’d pull in about $12 billion in gross revenue. Pandora is currently worth about $4 billion. Not to set it in stone, but Pandora’s lid is about to be shut – and most of the world won’t even notice.