Ever since Apple's (Nasdaq: AAPL ) iTunes took the music-delivery world by storm, it's pretty much been a one-sided game. Sure, there's Sirius XM Radio (Nasdaq: SIRI ) for those music lovers willing to pay up for premium services, but when it comes to downloads, Apple sure has had a huge chunk of the pie.
But now the field is getting a bit more crowded -- more players, more options -- and it's not as obvious who the ultimate winner will be. We asked three of our Motley Fool experts what music forum they're betting on, and what they think is the best way to invest moving forward.
Fool contributor Anders Bylund
Music lovers today have a plethora of choices online. We can buy tracks to download, subscribe to all-your-ears-can-eat buffets, or dip into strictly regimented playlists from Sirius and terrestrial radio stations. Heck, you can still buy CDs from Amazon.com (Nasdaq: AMZN ) if you have some uncollected dust around the house -- physical media is great for that job.
There's a place in the ecosystem for all of these models. Some consumers swear by owning their media, which is why Apple iTunes will remain relevant for years to come. Others can't be bothered to piece together a playlist or prefer not to rely on an Internet connection; that's the core audience for all the radio stuff.
But convenience is still king, and that's why I believe that streaming media buffets will dominate this landscape in due time.
After taking Europe by storm, Spotify is coming soon to America. As it's being backed by venture capital, I'd expect Spotify to eventually appear on the stock market as well. For a low monthly fee or occasional advertising breaks, you get streaming access to 17 million titles, dwarfing even iTunes' 13-million song catalog. There's little incentive to stay loyal to iTunes-style media buys in a Spotified world, particularly if you're a voracious audio gourmand.
If this sounds vaguely familiar, it's because Netflix is playing the same song over in the movie department.
Pandora Media (NYSE: P ) takes a different tack, trading pinpoint access to a huge catalog for a breezy listening experience. The service has an enormous but poorly monetized user base. The solution to Pandora's moneymaking problems may lie in ripping a page from Sirius' playbook: Ford (NYSE: F ) and BMW (OTC BB: BAMXF.PK) are putting the finishing touches on the first Pandora-enabled in-car entertainment systems.
Between these two early entrants and the expected horde of upcoming imitators, there will be a music consumption model to fit nearly every taste. Convenience is king, and bandwidth is cheap -- that's a killer combination.
Fool contributor Tim Beyers
I'll concede that there a variety of ways for audiophiles to get their online groove on. Pandora's penchant for musical discovery appeals to those with an eclectic ear, while Sirius XM's paid programming soothes the souls of fans who know what they like. Other options include Europe's Spotify, which will bank on a blended approach -- possibly with Facebook's help -- when it arrives on our shores this week. And finally there's MySpace, which recently turned to Justin Timberlake to get the sexy back.
But none of these businesses is so well positioned as Apple. Years after overtaking Wal-Mart as the world's largest music store, the Mac maker today brings in roughly $5 billion a year from iTunes and iPod accessory sales.
To be fair, enthusiasm for Spotify's freemium model can fairly be considered a mild indictment of iTunes. So be it. For all the fanfare it has achieved, Spotify has thus far failed to sign Warner Music (NYSE: WMG ) here in the U.S., and both labels and Hollywood have good reason to love Apple's new iCloud download-once, play-on-any-iOS device service that debuted during last month's Worldwide Developer Conference.
iCloud plays into an important truth: Downloads matter for the vast number of music and movie fans who build collections. And remember, no matter whose service captures the imaginations of audiophiles, chances are they'll be listening on an Apple device.
Fool contributor Rick Aristotle Munarriz
I'm not naive. I don't believe that Pandora and smaller streaming sites will be losing money forever. Bandwidth costs will get lower. Ad rates will get higher. Cloud-based track serving won't always be a loss leader. However, why take a chance on what may be profitable in the future? Sirius XM is in the black right now, and reports of its death in a future of crowded dashboards and widespread connectivity are unfounded.
There will always be a market for premium radio. Pro sports will demand top-dollar licensing. Howard Stern and radio-savvy celebrities will demand big paychecks. Do you think that Oprah Winfrey or Martha Stewart Living Omnimedia's namesake maven will work for peanuts?
Drivers will also demand coast-to-coast connectivity, something that drivers coping with buffering content on smartphone carriers with spotty coverage know all too well. Satellite radio -- and even terrestrial radio -- are here to stay.
Sirius XM is now trading for 44 times this year's earnings and 32 times next year's projected profitability. It may not seem cheap, but who knows how many years it will take before Pandora has positive forward multiples?
It's hard to argue against any growing service that's comfortably in the black with more than 20 million paying subscribers. Stick with what's working now -- Sirius XM.
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