Apple rumor "legitimizes" space, some say, and isn't necessarily bad for Pandora

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Issue Date: 
Sep 10 2012 - 2:00pm

From Issue:

The aftershocks of Friday's bombshell (in RAIN here) -- Apple's rumored entry into Internet radio -- continue today, as several industry experts chime in on the possible implications of such an event. For one, Wall Street had its say, as Pandora's stock fell 17% on Friday.

But does an Apple Net radio service mean certain death to Pandora (and other webcasters, including broadcast radio's Internet plays)? Actually, "Some analysts say Apple’s entry into the web radio business also validates Pandora’s business model — something most radio executives have cast doubt on," Inside Radio suggests. Another one of those experts is former Cox Radio/Cox Media digital chief Gregg Lindahl, who thinks Apple's entry would legitimize Internet radio, especially to advertisers. "It says that this is for real and it is going to be bigger than AM or FM. The only argument that we can have now is how long it will take for that happen. It makes radio that much more exciting," he told Inside Radio.

An ArsTechnica op-ed (here) makes the point that the general public is beginning to adopt music services (i.e. free streaming) beyond iTunes, and that "Pandora, iHeartRadio, Last.fm, and the others aren't feeding money through Apple... it's most likely because Apple simply wants a slice of the streaming pie." BTIG analyst Richard Greenfield agrees (as reported in Inside Radio). He told CNBC that he’s not surprised by Apple's rumored move. "They’re not doing this to kill Pandora purposefully. This is a natural extension of their business that, unfortunately, Pandora and other companies are going to get caught on the short end of the stick."

Some feel Pandora would actually come out smelling better in a head-to-head with an Apple Internet radio service. TheStreet.com thinks an Apple Radio would just be a cheap, uninspired knock-off of Pandora. "Pandora is the only company properly positioned to disrupt traditional radio and its $16 billion annual advertising market. And nobody else has or can come even close to duplicating the Music Genome Project," they write (here). "If Apple competes against Pandora, Apple is likely to lose," Jerry del Colliano wrote in Inside Music Media today. "Apple won't use Pandora's music genome system that makes it so unique and so beloved by users. Going after them may be the biggest mistake Apple ever made unless they buy Pandora" (but not until Apple negotiates better royalty rates than what Pandora has).

TheStreet.com wrote, "If Apple is going to do this the only credible way forward is to buy Pandora. I'm not sure why Apple would enter the streaming business in the first place, but it could seamlessly integrate Pandora with iTunes. If you're going to do personalized radio, do it right for goodness sake." Forbes writer Mark Rogowsky contends (here) that Pandora has little hope of being profitable on its own, given what it pays in royalties, and how he sees the profitability of ads playing out. Thus, Pandora is ripe for acquisition by a larger company that can make its profits elsewhere, like Apple!

So, what would an Apple Internet radio service mean for broadcast radio? Fred Jacobs (from whom we stole the Apple with antenna image), wrote in his blog here, "For radio, nothing really changes. It’s just another indication that the world of audio entertainment has become more crowded." He does suggest broadcasters consider "how radio brands can provide a unique and welcome service that is different from what they get from pure-plays." For starters, radio should "clean up and improve" its streams (concerning ad-insertion, buffering, bit-rates, programming, etc.).

We'll undoubtedly be talking about the prospect of an Apple Internet radio service at RAIN Summit Dallas on September 18th (just a week from tomorrow).

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