Apple iTunes Radio: Good for Pandora, Bad for Sirius XM?

Shares of Pandora (NYSE: P  ) moved higher -- and Sirius XM Radio (NASDAQ: SIRI  ) moved lower -- on Monday afternoon in the aftermath of Apple's (NASDAQ: AAPL  ) presentation to kick off its annual WWDC event for developers.

Why did Pandora move higher? Apple's long-anticipated iTunes Radio service was finally unveiled, and while the model is probably too close for comfort to Pandora's pioneering music discovery platform, at least now there are no more uncertainties. Pandora knows what it's up against, and there's a certain level of relief with that.

Why did Sirius XM move lower? The iTunes Radio service -- where consumers can create Pandora-like stations -- isn't all that different than the assault that satellite radio has been able to contend with in the past through Pandora and lesser rivals. However, it was Apple's push for iOS in cars that spooked investors.

Apple announced that Honda, Mercedes, Nissan, Ferrari, and Infiniti will be integrating more iOS features in their cars by as early as next year.

Now, Sirius XM is no stranger to the connected car. It has surprisingly worked in Sirius XM's favor. CFO David Frear revealed earlier this year that drivers of cars with smartphone-tethered vehicles convert at a higher rate than those who don't. Most of the newer cars on the market already make it easy for a smartphone owner to use USB ports or Bluetooth to play tunes and podcasts through iTunes or stream popular apps.

However, it's just worth the hassle for many smartphone novices. That may change next year as car LCDs provide phone, text messages, and other functions. A photo during the presentation revealed dashboard icons on a screen for phone calls, messaging, mapping, and music. The fear -- one would assume -- is that there are now many Trojan horses here to disrupt Sirius XM's model. Whether someone wants hands-free phone conversations or free navigation, there will be so many reasons to get up to speed with in-car iOS functionality that it will become that much easier to stop paying $14.49 a month for Sirius XM with so many cheaper options.

Apple isn't afraid to sell itself cheap with iTunes Radio. In a surprising move, Apple will offer it for free as an ad-supported model. An ad-free version is included for those paying $24.99 a year for iTunes Match, which effectively makes it cheaper than Pandora's ad-slashing Pandora One subscription that costs $36 a year.

Pandora and Sirius XM shareholders can take heart in knowing that Apple has been surprisingly mortal in recent years on the digital music front. It was slow to jump into the streaming market. Apple also flopped with its Ping social music network and has failed to gain serious traction with iTunes Match.

Things may change if more cars begin pushing iOS integration -- making it harder for Pandora and Sirius XM to keep growing -- but until Apple proves that it can succeed in a niche that is has neglected for years, it's hard to bet against either company.

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  • Report this Comment On June 11, 2013, at 9:19 PM, zukerman wrote:

    To understand the success of Sirius, is to understand those that utilize it. You use the argument that i Tunes Radio should be more of a threat to Pandora, then point out that Sirius fell with the announcement. Couldn't Siri be asked to tune in Sirius xm as well as i Tunes? Your thinking that Apples ROI could stand the heavy ramp that it would take to replace Sirius's entertainment offerings when Pandora has far more listeners and can't turn a profit? Apple has the advantage of being last to the race and should realize that making a profit from those that expect free, a considerable slog. The only news here was they made their system more friendly to existing users, so all outward appearances point toward keeping their customers and not muscling out anyone. Only a fool wouldn't consider Apple's weight in their respective space, but what can be gleaned from this tweaking that would threaten in the short run? You've written this boogeyman article so many times with all the popular names I can no longer keep track anymore. User of all, champion of none.

  • Report this Comment On June 11, 2013, at 11:46 PM, Lamley2 wrote:

    I can't believe the reasoning that Apples new product will hurt SiriusXM more than Pandora. There seems to be a 1:1 correspondence between the music Pandora offers and the music Apples will soon be offering. SiriusXM has another world...talk. SiriusXM has branded content and sports games of nearly every major college and pro team in several sports. As for music, I believe you can pay and get Pandora without commericals but unless you do, you have to put up with those.

    I'm puzzled by your logic.

  • Report this Comment On June 12, 2013, at 8:26 AM, indycolt17 wrote:

    Well, the Fool hasn't figured it out yet and they probably never will (and they're not alone). Apple is yet another entry that the market will have to digest while Sirius takes a brief hit. Maybe Apple's entry will finally convince them that Sirius subscribers are not looking for a music alternative. Maybe we can finally end this debate when Sirius' financials once again show no ill effects to another so-called competitor. But alas, Sony will come out with a new cupholder with a built in MP3 player that will threaten to wipe out Sirius. Or Pandora will have a built-in device in the steering column than will literally spoon feed me with the latest music from 'ANYband', making me realize I don't really want to listen to NFL Radio, FoxNews, or CNN, etc... on Sirius.

  • Report this Comment On June 12, 2013, at 9:21 AM, goodguy36 wrote:

    It all depends on what you want to listen to. Personally I prefer Sirius. Stop the gloom and doom garbage and let the consumer rule. Fool.

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