It’s not surprising that Pandora Media is among the most attractive stocks this year. Everyone that I know uses Pandora’s online radio service while at work, working out, traveling … you name it. With large customer demand and stocks shooting to an all-time high this week, the company seems somewhat unstoppable. But with recent news of Apple entering this space in the form of iTunes Radio, the momentum may be short lived.

Earlier in the week, Apple reported releasing iTunes Radio as a new radio feature available through their Apple iOS 7 software. This feature will also be made available to the 400 million iPhones and iPads sold over the last two years. The service will operate similar to Pandora’s – users pick a "station" to listen to based on an artist or genre of music. The service is free, but includes advertisements. Subscribers have the option to op out for the ad-free service for a fee of $25 a year, $11 cheaper than Pandora.

iTunes Radio poses a real threat to Pandora’s customer base of over 72 million users. According to NPD, 42% of iTunes users are also Pandora users. Since iTunes Radio will be made available directly through the iTunes program, it will be far more convenient to jump on the iTunes Radio than search through your phone or computer for the Pandora application. Another huge advantage is that Apple made deals with large music labels directly, and as a result, will have a library of about 27 million songs. Pandora relies on mandatory licensing rules and its library only consists of only about 1 million songs.

Pandora still has some edge over their competition. The service is more widely available as Android and Blackberry users can access the service. It’s also includes other devices such as TV sets, DVD players, and table top radios. In order to maintain their position, Pandora has released new features to their iPad software that helps users post on social networks such as Facebook and Twitter. They also eliminated their 40 hours of free listening per month restriction on mobile devices.

It will be interesting to see how the competition with Apple will affect its users and advertisers. Pandora feels that their position in the market is strong and their service offering exceeds Apple’s. Only time will tell.
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Victoria Baston

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