Pandora Tanks on Rumors of Apple's Next Service
Apple (NASDAQ: AAPL) is scheduled to launch its first online radio service in early 2013. According to Bloomberg, the Cupertino, California-based tech giant has "intensified negotiations" with major music labels to produce the ad-supported service. A deal could be reached by mid-November.
While this news could be terrifying to Spotify, the critical leader of the music streaming industry, it is already proving to be devastating for Pandora (NYSE: P), the actual leader of online radio. With 54 million active users, Pandora is enormously popular. Apple's existing music service, iTunes, has hundreds of millions of users. But unlike Pandora, none of them are currently served ads. Unlike Spotify, none of them currently pay a monthly fee. If Apple's plans come to fruition, that could soon change.
While the new radio service is still just a rumor, Pandora shares fell more than 15 percent this afternoon. The company has recovered slightly and is currently down more than 12 percent.
For more than 20 years, Apple has been regarded as a hardware company. The Mac maker knew that it would not profit from iTunes, but it built the service anyway to increase sales of the iPod. It has used both iTunes and the App Store to sell millions of iPhones.
By launching an ad-supported service, this would be Apple's first significant push toward transforming the firm into a service company.
Ironically, Apple's chief competitor has been doing the opposite. While Microsoft (NASDAQ: MSFT) continues to sell software, the company has now started manufacturing a tablet. It already makes game consoles, mice, keyboards and other peripherals. In the coming year, Microsoft is expected to add a smartphone to its lineup of in-house products.
Microsoft has also built its own music service called Xbox Music. That could be the real reason why Apple decided to build an online radio service. While Xbox Music is one of the new kids on the block, Pandora is a stalwart. And today, the biggest stalwarts are the ones suffering the most.
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