Market Overview

Apple Threatened by Pandora and other streaming music services

 

In ancient Greek mythology, Pandora received the gift of music from Apollo. According to the myth, when Pandora's box was opened the evils of the world escaped. By time the box was closed, the only thing that remained was hope.

 

Right about now, the trendsetting streaming music startup Pandora probably thinks the evil that escaped the mythological box is Apple (NASDAQ: AAPL). The Silicon Valley titan controls 70 percent of online music sales, according to marketing research firm NPD Group. Pandora hopes that Apple's recent efforts to stunt the growth of alternative streaming music services, which has prompted a preliminary federal antitrust probe,  will be unsuccessful.

 

Apple announced a new subscription plan last month that gives them a 30 percent cut of all payments made through its App Store. Many feel the new plan is an attempt by Apple to stymie the growing popularity of Pandora and other streaming services. The loss of an important source of revenue may have affected Pandora's plans for an IPO.

 

"I think this could delay the Pandora IPO," said a source associated with the public offering that was quoted by the New York Post. "Apple has crossed the line. They are either going to have to walk this one back, or face enforcement action, or a lawsuit."

 

About one-fourth of the U.S. population uses Pandora. The Oakland, CA-based startup has the most popular Internet radio service, according to Ando Media. Pandora's future growth is tied to the trend by nearly all the major auto makers to integrate Internet radio into the dashboard.

 

Pandora is the Internet radio service used by most car makers. "The car is definitely the big new story for us," says Pandora CEO Tim Westergren.  Pandora is available now on the BMW Mini and Ford (NYSE: F) Sync. Car dashboards with controls for Internet radio "will probably be our biggest market," says Westergren.

 

 

Cars and Internet television are the new frontiers for streaming music. One of Pandora's rivals is Mog, which is based in nearby Berkeley, CA. "People listen to music while driving more than anywhere else, so its critical for us to offer Mog in the car," say Mog CEO David Hyman. "The car is the holy grail." The BMW Mini also uses MOG, which the startup demonstrated at the South by Southwest festival in Austin, TX.

 

Auto manufacturers and consumer electronics makers have formed a consortium to develop standards for integrating mobile phones with car dashboards and steering wheel controls. Nokia played a leading role in the formation of the group. Among the founding member of the Car Connectivity Consortium are Daimler, General Motors (NYSE: GM), Honda (NYSE: HMC), Hyundai, Toyota (NYSE: TM) and Volkswagen. Other members of the group include Samsung,  LG Electronics and Panasonic (NYSE: PC).

 

The group may adopt the Terminal Mode standard developed by Nokia (NYSE: NOK) and CE4A (Consumer Electronics for Automotive), an association of car makers.  Some upcoming models for BMW, Toyota and GM use a platform that supports Terminal Mode.

 

Streaming music is projected to expand rapidly in the next five years, according to ABI Research. Most of this growth, says ABI, will come from the growing popularity of streaming apps on mobile phones.

 

 

Apple could lose a substantial amount of its music business as streaming alternatives proliferate. ABI thinks that Rhadsody and Spotify, a European service that wants to enter the American market later this year,  could be the chief beneficiaries of the streaming trend.

 

Both Rhadsody and Spotify will be gravely damaged by Apple's plan to take a 30 percent cut of their revenue from the App Store. Spotify is in talks with Universal Music and Warner Music to license their catalogues. The European startup already has agreements with Sony (NYSE: SNE) and EMI.

 

Spotify, which is headquartered in the U.K. and has research and development facilities in Stockholm, recently celebrated the milestone of reaching one million European subscribers.

 

 

Apple is rumored to be in talks with the major music labels to gain increased access to their catalogues.

 

As part of its plan to confront the growing threat from Pandora, Spotify and Rhadsody, Apple is expected to overhaul its MobileMe cloud service to allow the free storage of music, videos and photos. Apple's new $1 billion data center in North Carolina will be a hub for iTunes and MobileMe

 

The revamped MobileMe service could be available next month, reports Apple Insider.

 

Barry Bazzell is a Benzinga contributor who focuses on Bay Area technology stocks. He blogs about tech companies and startups at Silicon Valley Blog.

 

Posted-In: Tech

 

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