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Analyst Says Spotify's Move Toward Free Mobile Aimed At Disrupting Pandora's Sound Exchange Negotiations

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Pandora (NYSE: P) shares have fallen more than 6 percent since a DJ report Thursday afternoon suggested Spotify is looking to unveil a free mobile music service. The stock is down about 3 percent to $28.49 with about an hour left in this week's trading.

Albert Fried's Rich Tullo earlier considered the implications of such a Spotify initiative on Pandora and the company's stock. The analyst maintains an Underweight rating and $23 price target on Pandora shares.

Tullo believes Spotify is moving toward the IP radio market in order to "disrupt Pandora's upcoming Sound Exchange negotiations" -- not steal market share -- a point several sources had suggested on Thursday.

"If Spotify's rate card discussions are accurate, we think 2014 will be a tough year for Pandora from a news flow perspective. We expect the Sound Exchange and the music industry to push hard on making rate concessions because artists may be going into the negotiation from the position that Pandora needs to pay 4x to 10x more per performance," Tullo said.

The Albert Fried analyst believes Pandora must create "new model outside of IP radio where artists can drive income."

Tullo's price target on Pandora suggests potential downside of about 19 percent from where the stock is trading Friday afternoon.

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