Pandora plunges after Apple Radio news


PandoraPandora had a tough day yesterday as shares tumbled after a Bloomberg report surfaced that Apple is has a date for its upcoming radio service--early 2013. Negotiations with the labels are intensifying to the point where the company can now anticipate a launch time. The ad-supported music discovery online radio service will be similar to Pandora and iHeartRadio’s offering. It’s likely that the service will piggyback off of iTunes, since there are already so many members. It will also likely be offered as an app and bundled into newer iPads and iPhones.

The news sure hit Pandora stock hard. It plunged 17% on the news and trading was temporarily halted for a short time. The drop ended up down 11.73% for the day.

Shares are down 25% this year, with Thursday’s tumble pushing shares to a fresh record low. The company went public in June 2011 with a $16 IPO price.

Bloomberg says Apple and major music labels have “intensified negotiations” to start the Internet radio service by early next year.

A deal with major music labels is possible by mid-November, with a launch in Q1 next year, sources told Bloomberg. To challenge Pandora, Apple is seeking licensing pacts with labels that allow more flexibility about what listeners hear. Pandora relies on a compulsory license that limits how often users can skip tracks and how many times an hour an artist can be played. Apple is also seeking earlier access to new releases.

Execs from Universal Music Group, Warner Music Group, and Sony Corp.’s music division visited Apple’s headquarters in recent weeks to learn more about its radio plans, the story said. Apple, the world’s biggest music retailer with more than 400 million iTunes accounts, wants listeners to be able to buy tracks as music streams or revisit what they’ve heard in auto-generated playlists, they said.

See the Bloomberg story here

RBR-TVBR observation: At first glance, people may wonder how Apple can improve on what Pandora has–they both do essentially the same thing, they both have apps and can go mobile in cars. So why the big stock drop? It may be about how the service is going to monetize mobile ads—a hurdle Pandora and Facebook have been dealing with as of late. The story noted the negotiations with labels have centered around advertising. In addition to an upfront fee, labels are seeking a percentage of ad sales and the ability to insert their own commercials for artists. This is a bit of a new revenue model and investors are salivating. Apple also sees the service as a way to grow its iAd mobile adv platform.