Shares of digital music specialist Pandora Media (NYSE: P ) have taken a plunge today, dipping as low as 3%.
The catalyst for this minor panic? Instant-messaging expert Twitter confirmed that it bought out privately held song-recommendation service We Are Hunted and will launch its own music service in the near future.
Music lovers already have a plethora of choices to manage their playlists and media libraries. However, Twitter's service gets uncomfortably close to Pandora's special sauce. We Are Hunted recommends songs and builds playlists based on your personal preferences and listening habits, much like Pandora's vaunted Music Genome database.
But it's not a wholesale replacement for Pandora. This service seems focused on building better playlists from material you already own or can find for free online. It's not likely to expand your musical universe much. But that's exactly what Pandora does.
If I want to hear something that I already know and love, I fire up Spotify or my favorite MP3-playing app, pick a few tunes for the moment, and off we go. Apple can do this with its "smart playlists" in iTunes. Spotify has plugins for the same functionality. Even the oft-forgotten Google Music service offers an "instant mix" option to build playlists around the musical features of favorite songs.
This is the crowded space that Twitter will barge into. It's not at all a head-to-head collision with Pandora.
Pandora is for those times when I want something new. About half of my current MP3 library is built around stuff I stumbled across on Pandora. Sure, you can focus a Pandora station around handfuls of known favorites, but you'll still be served the occasional mind-blowing choice out of left field. I'm into trance music now due to a surprising Ferry Corsten remix of a pop-rock tune.
So Twitter's service may seem similar to Pandora, but it actually caters to a very different need. As far as I'm concerned, Pandora still doesn't have any serious rivals. The only current threat to this fantastic company is the financial pressure of sky-high royalty rates, which may put Pandora out of business regardless of its customer appeal. But that's not what today's drop is about.
Pandora has won millions of devotees among music fans but few supporters on Wall Street. The online jukebox seems to be redefining the way we consume music, a transformation that's only likely to grow. But high royalty rates and competition from all corners threatens to silence the company. Can Pandora translate success with its listeners into a prosperous business model that will deliver for investors? Learn about the key opportunities and potential pitfalls facing the upstart radio streamer in The Motley Fool's new premium research report. All you have to do is click here now to subscribe to this invaluable investor's resource.