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This Is Pandora's Biggest Nightmare

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What happens when somebody out-Pandoras Pandora (NYSE: P  ) ?

The music-discovery website is still growing quickly, even though the stock got clobbered last week after the company issued guidance calling for a sequential dip in revenue and a wider deficit than analysts were targeting for all of 2012.

However, what if the sequential dip in revenue isn't just a seasonal thing? What if Pandora's popularity is starting to peak?

The cult of popularity
I fired up my Kindle Fire this morning to see the ranked list of music apps. Pandora didn't win, place, or show.

The top app is Clear Channel's (OTC: CCMO) iHeartRadio. The free streaming app provides online access to hundreds of the terrestrial giant's real stations. It also introduced customized radio along the lines of Pandora.

TuneIn Radio is next. This is an aggregator of a ton of AM and FM content, along with popular podcasts and access to BBC, NPR, and other national broadcasts. We're talking about 50,000 stations and 120,000 shows! You can seek out your favorite audio shows and see which stations are playing them. Folks arguing that Sirius XM Radio's (Nasdaq: SIRI  ) biggest threat is Pandora are missing the point. Satellite radio isn't just about music -- as Pandora obviously is. It's far-reaching aggregators like TuneIn that should be in Sirius XM's crosshairs because they offer a complete gamut of sports, news, talk, comedy, and music (with commercial interruptions, of course) for free to any smartphone owner.

The third hottest music app request on Kindle Fire tablets is the one by music video licensing giant Vevo.

Pandora? Squint your eyes and you'll see it clock in fifth.

Now, this doesn't mean that Pandora is the fifth most used music app on Kindle Fire. Obviously a ton of buyers were downloading the program when the Kindle Fire hit the market late last year. Users just like to gravitate to new things. However, the ranked list is indicative of how things are trending for new owners.

App Store to the rescue
Things look markedly better for Pandora's trend on the App Store. It is the top dog right now. However, if you check out the premium applications leader board you'll find TuneIn Radio Pro -- a $0.99 version of the free app that adds DVR-like functionality to record shows or pause and rewind streams -- is the second most popular program that folks are actually willing to pay for.

There's obviously a new level of engagement and commitment once money is exchanged, something that Pandora has discovered to be a hard sell since the vast majority of its users are freeloaders.

Now, one can also argue that TuneIn Radio Pro is a threat to Sirius XM as well. It offers many of the features that Sirius XM has been pitching in its Sirius XM 2.0 platform that has been slow to take off.

However, Sirius XM will always have an audience of radio buffs that can appreciate the simplicity of reliable premium content from coast to coast. More cars are making it easier for drivers with smartphones to stream Pandora, TuneIn, and iHeartRadio through their dashboards, but they're always at the whims of carrier coverage.

It also doesn't help that the big boys are installing data meters.

Throttling those engines
(NYSE: T  ) and Verizon (NYSE: VZ  ) were the biggest beneficiaries of the smartphone revolution, offering unlimited data plans to the first few waves of buyers to keep them connected to one of the country's two largest wireless carriers.

They stopped offering unlimited data plans to new accounts, but now they're going after the folks that were grandfathered in to the more generous cybersurfing smorgasbords.

AT&T has been advising its most active users that it will throttle their speeds -- in a nutshell, slow them down dramatically -- once they hit certain levels of data consumption in any given month.

Streaming audio isn't as big a data sipper as video but it does add up for folks who rely on Pandora for their daily commutes. One would think that that would be Pandora's biggest nightmare -- or at the very least what keeps Sirius XM in good shape -- but really, it's nimble competition that will ultimately show if and when Pandora peaks in popularity.

Even if it's not happening now, it pays to -- dare I say -- tune in.

Running of the bulls
I remain bullish on Sirius XM's future. It should come as no surprise that I'm promoting the CAPScall initiative for accountability by reiterating my bullish call on Sirius XM for Motley Fool CAPS.

XM Satellite Radio was a Rule Breakers recommendation before the Sirius XM merger. It's now gone from the scorecard, but if you want to discover the newsletter service's next rule-breaking multibagger, a free report reveals all.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

Read/Post Comments (8) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 14, 2012, at 3:50 PM, doubting wrote:


    I also remain very bullish on siri. You described quite explicitly why. Sirius XM is ubiquitous with its simplicity, convenience, galore of unique and extremely diverse content and affordability. The service has its primarily auto customer who is usually educated, can appreciate content and is not intimidated by a $20 monthly fee. I am not aware of any other monthly fees that are lower, except for Netflix that has a very poor menu of mostly outdated content, in my view.

    We are observing already today a clear turn in favor of siri from OEM growth in better economy to used car penetration to sat radio 2.0 with coming persoanlization and on-demand this year. All these factors are and will be contributing to siri's growth and margins. This is why I keep saying that the company is a bonanza and the stock will catch up with the company success. Mark my word!!!

  • Report this Comment On March 15, 2012, at 12:29 AM, Nelbuck wrote:

    With all do respect Rick, perhaps you should do your homework before you go on a rant against Pandora. First of all, Pandora's subscription rate is only at 4%. The company definitely doesn't have it's eye on that as its main source of revenue. Actually exactly the opposite is true. Pandora has taken its advertising efforts to the local level in several key markets. Sure, expenses have outpaced revenue for now...but how but that's only because it's listeners hip continues to skyrocket and royalty fees, at this point in time, are outpacing revenue. Give it time and the local seller efforts will truly pay off. Advertisers are jumping on board in record numbers. Another area in which you are either il-informed or just haven't taken the initiative to learn about, is the algorithm in which Pandora serves music to its listeners. It's vastly different than IHeart radio, which merely uses popularity and programmers decision-making to determine which songs are served. Pandora has the Musi Genome Project which uses calculations based on human beings actually assessing musical attributes, to decide which song plays next. Plus satellite radio doesn't have the interactive properties of forwarding through a song or thumbing up or down that Pandora does. Bottom line your homework before writing an article. I hope you don't call yourself a journalist. Because, afterall, you write an opinion column based on, well, YOUR opinion.

  • Report this Comment On March 15, 2012, at 9:42 AM, doubting wrote:

    Pandora's business model is not sustainatble. They have two choices - start charging more people or go under. Pandora is not google or facebook to survive on ads. The market is immensely overcrowded by too many outlets trying to make a living off adds. It is not sustainable. This is why I am in 100% agreement with Rick. Current pandora has NO meaningful future.

  • Report this Comment On March 15, 2012, at 11:50 AM, GregMcCulley wrote:

    I agree that Pandora's current business model is a non-starter. However, Sirius XM's business model has a flaw that I believe will return to roost in the coming years: they are selling music from the costly medium of outer space. Sure, it's novel, but now that the Internet is starting to catch on, delivery of communications is trending more towards terrestrial comms versus satcom. Unless you're a government-funded organization with a mandate for global or persistent Earth coverage, selling Katy Perry from space just seems silly to me.

    And, if I were wrong, I think we'd be wondering when SIRI would break $100 PPS instead of rooting for pennies.

    My group is done with (SIRI)...AND (P)



  • Report this Comment On March 15, 2012, at 12:27 PM, sidorg222 wrote:

    Except, GMAC, that you can't have a hardline in a car. Shall I say that again?

    So, you're left with a wireless signal of some sort.

    AM/FM signal is ok in the city, but go drive outside of a city and see how many stations you get. And you get to channel hop if you drive for a few hours.

    Cell data plans. Same issue as AM/FM. Leave the city, and go through mountatins, etc, and you can have poor signals. Add to that data caps by Verizon & AT&T, and that can get expensive. And there's only so much bandwidth available in cell coverage.

    So, here is SIRI. The only solution which has excellent coverage anywhere you have reasonable view of the sky. And the beauty is that no matter if you have 10 listeners or 100 million, its the same amount of bandwidth being used.

    That's why SIRI will continue to grow. Great used of bandwidth, and convenience of the having your channels anywhere you go are hard to beat.

  • Report this Comment On March 15, 2012, at 2:56 PM, Banjolicious wrote:

    Kindle Fire gets data via WiFi which is not available to most commuters unless of course they are running a hot spot on their mobile phone.

    Also, Spotify is eating Pandora's lunch

  • Report this Comment On March 15, 2012, at 4:07 PM, doubting wrote:

    It is common misinformation and confusion definign Sirius XM as a "music selling outfit". Sirius XM is a true radio with all radio attributes from music to weather to traffic to sports and much more than all radios put together. We are talking close to 140 channels.

    Pandora, slacker, rhapsody, etc. are music playing outfits only with very minor exceptions. They are free juke boxes. As to their use in the auto, try it and you will stopp after your first try!!!

  • Report this Comment On March 16, 2012, at 8:41 PM, GregMcCulley wrote:


    Correct, no hardline in a car, but there is no need for a hardline in the car. I have a "vanilla" Verizon account for my iPhone, and I get 4 Gb each month. Perhaps I have less-than-average listening habits (on the way to/from work, during weekend errands, etc), but I don't come close to hitting that data limit. Most people don't live in a mountain pass or in rural areas (79.219% of the population lives in urban areas compared to 20.781% living in rural areas, according to the Census Bureau). So what you have is a niche capability in terms of cosmopolitan demographics. True, truck drivers might enjoy SIRI, and there are about 3.5M of those operating in the US according to USDOT. Again, niche.

    I think satellite radio is a very novel, clever idea, but my worries about demand persist. When/if the stock returns to <$2, I will establish a new position. I certainly hope that happens, and I actually do expect SIRI to rise to $2.75 NLT 1 Jan 2013.

    But as many Sirius XM investors have learned over the years, hope is not a plan.


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