Questions Loom About Apple’s Streaming Radio Impact on Pandora
The landscape for Internet radio will likely take a dramatic turn this week when Apple is expected to announce its long-awaited Internet radio service at the company’s Worldwide Developers Conference (WWDC) in San Francisco. CNET reported Friday that Apple had finally secured a deal with Sony Music and now has the three major music labels on board, including Universal Music and Warner Music. Analysts largely see Pandora as most vulnerable to the Apple streaming service due to its visibility in the market, but NPD analyst Russ Crupnick said in Mark Twain fashion last week that reports of Pandora’s death “are greatly exaggerated."
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"You would think Pandora’s most in [Apple’s] sights,” Crupnick said, citing what NPD estimates is a potential active listener base of 80 million users for Pandora. Both Spotify and Pandora are likely to feel the same pinch since eight out of 10 Spotify users are also Pandora members, he said. Pandora has more to lose “because it’s a lot bigger” and has a low barrier to entry between the free service and the $36 annual paid version, Crupnick said, but at the same time, “people really, really like Pandora,” Crupnick told us. Pandora has high awareness at 58 percent of the Internet population, people use it in various locations, it has “a lot of use cases” and it’s “democratic,” appealing to both young and older listeners, he said. Pandora also has a well-entrenched support system, with its apps available on Roku boxes, videogame consoles, Blu-ray players and connected TVs.
While Apple typically has a disruptive effect with anything it does, it’s not guaranteed to dominate, Crupnick said. The streaming music market is “not like tablets,” he said, where there wasn’t a good tablet solution in the market before Apple showed up. It’s also different from the digital music market where there wasn’t a solid infrastructure and easy-to-use MP3 players prior to the appearance of iTunes and the iPod. “We're not in a situation now where the world is saying it really likes streaming but nobody does it very well,” Crupnick said. “You could see a lot of Pandora users go ‘ho hum’ at this,” he said.
There’s also the possibility of cannibalization at a time when the digital download market is “mature,” Crupnick said. NPD data show a substantial part of the music download business is coming from people “not using Internet radio services yet,” so there’s “a bit of a cushion” for Apple if there is any impact on its music-to-own business, he said. For now, between 40 and 50 percent of Pandora, Spotify and iHeart Internet radio users buy digital downloads, with Spotify users being “some of the heaviest buyers,” he said. In five years, Crupnick said, “it could be a different conversation.”
Most important for Apple now is to “lock down its users” in an increasingly competitive market where Google has announced its own music service, Beats plans to launch one this year and Slacker is adding analytics to its streaming product, Crupnick said. In the end, he said, Apple’s move could be “less about music per se” and more securing the Apple ecosystem, he said. Apple wants to be sure that when a consumer is “thinking about their next device, that the Apple ecosystem continues to make sense,” he said. Even if Apple Internet radio streaming customers were to download less music from iTunes in the new age, they'd “still be using Apple’s streaming service,” Crupnick said.
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Amid the chatter Friday about Apple’s music streaming service, Pandora trumpeted its growing audience metrics in a news release, saying listener hours grew in May to 1.35 billion, a 22 percent jump from May a year earlier. Pandora’s share of U.S. radio listening was 7.29 percent compared with 5.8 percent in May 2012, it said. Active listeners were 70.8 million at the end of May, a 33 percent increase from 53.3 million in May 2012, it said. BMO Capital Markets maintained its price range for Pandora of $16-22 on the news, saying Pandora May listener data showed “fairly consistent performance in most metrics” and “augurs well as the company improves its mobile monetization rates.”