Apple Inc (NASDAQ:AAPL)’s internet radio service is finally on air, Pandora Media Inc (NYSE:P)
The iPhone maker has for long been the envy-point of many music businesses but it goes without saying the company has been instrumental in making the music business a sure fire money-spinner. Last week, Apple Inc (NASDAQ:AAPL) launched iTunes Radio at its Worldwide Developers Conference held in San Francisco. Apple’s streaming radio service is somewhat on the lines of the Pandora Media Inc (NYSE:P) one, that has 200M registered users. Another contender is Spotify, with 24M active users globally and 6M paying users.
Apple will be using its iTunes ecosystem and will begin with the United States where 54 million people use iPhones. Presuming that 50M users register for this new service and listen in to 10-hours of iTunes Radio every month that will account for around $96.9 M, just for music labels. No matter which way you look at it, Apple is in a win-win situation. It will just add some more glitter to the company’s already dazzling cash pile by selling an additional million iPads or iPhone. Ad –support will add to the revenues as well.
Now that Apple’s internet radio service is finally on air, Pandora Media Inc (NYSE:P) will have to wait and watch which way users swing. The pioneer’s revenues are on the rise but it hasn’t managed to generate enough profits. The weak strain in Pandora’s business model is the extremely high royalty rate that it pays to various record labels. In comparison, the high-bargaining power and long-term relationship that Apple enjoys with record studios will automatically place the biggie in an advantage position in paying lower royalties.
However, Pandora shares appreciation is beyond any logical explanation. Over the past six months, the stock has already risen 80% and has shown an unprecedented resistance to the Apple iTunes Radio launch. Currently, out of almost 200 million of Pandora’s users, 40%-50% use the iOS platform. iTunes Radio streaming is limited only to iOS devices. In effect this means that 50% of Pandora users are shielded from the iTunes radio effect. However, this percentage is high enough to cause some serious damage to a company that is trying to build the economies of scale in order to reduce its content acquisition costs.