Apple radio rumors rock Pandora's stock

Shares tank 18% on chatter that Apple is looking at developing an online radio service.

By Kim Peterson Sep 7, 2012 11:39AM
Rumors of Apple (AAPL) starting an online radio service sent shares of Pandora Media (P) plummeting 18% Friday.

The Wall Street Journal reported that Apple wants to license music with an eye toward offering virtual radio stations that play songs based on a user's preferences. Pandora, Spotify and a number of other rivals offer similar free services, but many have found it a tough business because it's hard to make money just through advertising and subscription fees.

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Apple obviously has no problem making money and could afford to run such a service at a steep loss, building upon its iTunes and iPhone dominance.

The The Wall Street Journal reports that Apple's service would work across the iPhone-iPad and Mac ecosystem and perhaps even include PCs running Microsoft's (MSFT) Windows. Including Windows would be very smart, since many people listen to online radio at the office. (Microsoft owns and publishes Top Stocks, an MSN Money site.)

But in a competitive strike, Apple may exclude phones and tablets running Google's (GOOG) Android platform.

What's unclear is why Apple may be entering this area now. Given the company's long history with online music, it would have had ample opportunity to get into online radio. But it didn't -- it's a costly venture that doesn't bring much revenue, and possibly the company wanted to focus users on buying music on iTunes instead.

But with larger rivals such as Clear Channel Communications entering the field -- and possibly feeling the need to have its own offering on its own phones -- Apple appears finally to be entering serious discussions.

More people are getting music through Pandora than iTunes, according to a Nielsen survey that the Journal reported. Pandora has nearly 55 million active users and is the clear leader in the space, but it hasn't yet reported a profit.

By comparison, iTunes seems a little dated.

Apple may make the service available as a preinstalled app on its iPhones and other devices, which would be a powerful introduction.

If the news reports are right, then Apple has just started serious talks and likely will not have anything to announce by the Sept. 12 event at which it's widely expected to announce a new iPhone.

Is there room for Pandora to survive against Apple? Pandora shareholders aren't sure, taking the stock down nearly 18% in morning trading Friday to $10.34. Apple shares were up less than 1% to $680.14.

Shareholders of Sirius XM Radio (SIRI) may also be worried, as the possibility certainly opens up for Apple's service to get into new cars as well. Shares of Sirius fell less than 1% to $2.53.

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