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Pandora (NYSE: P ) can't seem to catch a break these days. The Internet radio service has seen its stock lose more than 36% of its value so far this year. However, the stock's most recent dip is compliments of Microsoft (Nasdaq: MSFT ) , which on Monday announced its latest attempt at winning share in the online music market. Meet Xbox Music.
Similar to Pandora, the new service creates customized playlists using a feature that Microsoft calls Smart DJ. Already this sounds more promising than Apple's (Nasdaq: AAPL ) recent jaunt in music land. Last month, Apple also outlined plans to launch a streaming radio service. Unfortunately, Apple's proposed music offering has since stalled thanks to licensing disagreements with Sony (NYSE: SNE ) ATV Music Publishing.
Ouch. That's a major setback for Apple, considering Sony/ATV, which is a joint venture between Sony and Michael Jackson's estate, controls the publishing rights for more than 2 million songs. Xbox Music, on the other hand, comes equipped with a global catalog of 30 million tunes, which listeners can stream for free on devices running Windows 8 or Windows RT.
In addition to competing with Pandora, Microsoft's new service also presents challenges for Apple's iTunes Store, Amazon's (Nasdaq: AMZN ) Cloud Player, Spotify, and Google (Nasdaq: GOOG ) Music. That's because Xbox Music combines the services available from each of those players into one platform.
For example, Xbox Music listeners get free music streaming with download-to-own capabilities, monthly subscription options, and offline streaming with unlimited playback. Amazon may want to take notice as well, considering Microsoft says it will roll out a storage service in the cloud next year to compliment its Xbox Music offering. Still, Pandora remains the company with the most to lose.
What's at stake?
When you think of radio services, two key players stand out. Sirius XM (Nasdaq: SIRI ) , which rules the satellite radio sphere, and Pandora in the personalized radio space. More than 56 million active listeners tune in to Pandora each month. However, new competition from companies like Microsoft and Apple highlight the low barrier to entry in the space.
Consider this: More than 67 million people own the Xbox and will have direct access to Microsoft's new music initiative. Not to mention Microsoft will bundle Xbox Music software with Windows 8 to attract a wider user base. With the infrastructure already in place, this was a no-brainer for the company. For Microsoft, this is yet another opportunity to gain a foothold in mobile. Microsoft plans to market Xbox Music across mobile platforms next year, by releasing versions for Google's Android and Apple's iOS devices.
To be fair, neither Microsoft nor Apple has had much luck launching new music products in recent years. The software giant's Zune brand is perhaps the best example of this, followed by Apple's Ping network -- both of which failed miserably.
It's not yet clear whether Xbox Music can offer a better alternative than Pandora, but one thing is certain: Without a competitive moat, I simply can't justify Pandora as an investment. On the other hand, Microsoft's push into the digital music space could help the company gain much-needed traction in mobile.
It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.