Will Apple Be the End of Pandora & Sirius XM?

Share of Sirius XM Radio (NASDAQ: SIRI  ) opened slightly lower -- and Pandora (NYSE: P  ) moved sharply down -- after Apple (NASDAQ: AAPL  ) revealed impressive early adoption of its iTunes Radio streaming platform. 

The consumer tech giant announced that the free Internet radio service attracted 11 million unique listeners since rolling out last Wednesday. 

It's a big number, and it's the kind of stuff that is leading the market to question the vulnerability of Sirius XM's more than 25 million subscribers and Pandora's more than 72 million monthly unique listeners. 

However, there are also some pretty good reasons not to worry about Apple's initial performance. 

For starters, let's consider that iTunes Radio became part of Wednesday's iOS 7 rollout that has reached 200 million converts according to Apple. In other words, we're talking about less than 6% of the iPhone, iPad, and iPod touch users who updated to iOS 7 even bothered to check out the offering.

We also don't know how engaged they are. 

Apple bragged about a million iTunes users registering for Ping -- Apple's short-lived shot at social music -- during the first 48 hours of availability three years ago. It didn't last

Yes, 11 million listeners is more impressive than a million iTunes users registering for a poorly constructed social-sharing platform, but we don't know how many of these people will actually stick around. 

Pandora served up 1.35 billion hours to its 72.1 million unique visitors last month. That breaks down 18.7 hours per listener over the course of the month. Is Apple achieving this kind of stickiness or are folks just tuning for a song or two and moving on? How many of these 11 million listeners came back a second time after kicking the tires? 

We'll know if iTunes Radio is making a dent in Pandora and Sirius XM sooner than Apple may be willing to tell us. Pandora reports its metrics monthly, and we're about two weeks away from getting a snapshot of how it's holding up in September.

Sirius XM's quarter ends this month, so we'll be getting a quarterly report in a little more than a month.

Don't be surprised if Pandora and Sirius XM are doing just fine. Pandora recently scrapped a usage cap for mobile users of its free ad-based service. Car sales have been strong, paving the way for another quarter of healthy subscriber growth at Sirius XM. 

Sure, it's true that placing iTunes Radio front and center for iOS users may eventually eat into the audiences of Pandora and Sirius XM in this era where connected cars are a growing in number. However, Sirius XM was able to grow throughout Pandora's explosion in popularity.

We also don't know if the folks checking out iTunes Radio are new to streaming in general. After all, we're talking about iTunes Music users, who may have been leaning on the music stored on their iTunes account in the past. If iTunes Radio educates iTunes Music users on the merits of streaming, it wouldn't be a surprise to see Pandora and Sirius XM benefit from the musical awakenings.

Today's market action may not indicate that iTunes Radio will be more friend than foe to Pandora and Sirius XM, but there are too many unknowns to assume that the two premium radio leaders should be punished here. The sell-offs today appear overdone, and it wouldn't be a surprise to see the market change its tune once it realizes that Pandora and Sirius XM can turn up the volume in a few weeks.

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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 September 23, 2013, at 5:09 PM, EdFromOhio wrote:

    The sky is falling! The sky is falling!

    That's what they said when Blockbuster talked about getting onto Netflix's turf. Then there was Amazon, and Hulu, and Vudo. None of which have made a dent in Netflix.

    Pandora is much the same story. They aren't tied to a single ecosystem. They even have a built-in app in most TV's and/or Blu-Ray players today.

    Sure, there are a lot of Apple die-hards which will go for Apple's solution simply because it's Apple. But I think it will probably never catch on with the general population unless Apple breaks out of their "you must live in an Apple world to use our service" mold.

  • Report this Comment On September 23, 2013, at 5:32 PM, monolocogb99 wrote:

    As someone who uses Pandora and Sirius XM, I can say that iTunes radio is much better, less ads than Pandora, with no advertising in the UI, and much more choice and customization than Sirius XM. With 27 million songs in their library as opposed to only a million for Pandora, iTunes radio is a monster, after 3 days, I'm totally hooked.

  • Report this Comment On September 23, 2013, at 5:39 PM, hthussein wrote:

    this 10% drop is overdone? seriously?

    but a 50% increase in 2 weeks in not overdone!

    Pandora is a break-even company at best in the best of times. How do you think it will fare with real competition. Apple is not Spotify or XM Radio. Apple is the mother-load of iTunes, the software that revolutionized and monopolized digital music.

    Day dreamers who expect Pandora, a break-even company, to ride wind to unquestioned multiples and reach the stratosphere, need to get a reality check. Only those fooled into this pyramid scheme will realize that the right bet here is to short the stock. Because 11 million users in 2 days mean trouble for an 8 year old company that has 72 million users.

    I use iTunes Radio, and it works just fine.

    I also deleted Spotify and Pandora. No need to have extra useless apps on my Phone and iPad.

  • Report this Comment On September 23, 2013, at 5:45 PM, bobbydig wrote:

    I think its more of an issue for Google, Amazon, or Microsoft then Spotify, Pandora, or XM. Google and Amazon have no made a dent in Apple's Music business because they don't understand the music business. When is the last time that anyone bought music from Amazon? Do you know anyone using Google's new music service? Good companies develop good services, not just say we have one.

  • Report this Comment On September 23, 2013, at 7:27 PM, Greenmeenie wrote:

    Apple is a threat to Pandora, not Sirius. Pandora & ITunes Radio are EXACTLY the same thing. Sirius is not. It offers so much more. Pandora didn't kill SIRIUS and neither will Apple. Content is king and sets SIRIUS apart. Pandora is not profitable and will bleed cash trying to compete with Apple. Sirius is profitable and will use its cash to buyback shares, pay down debt and innovate. They aren't worried about Apple the way Pandora is.

  • Report this Comment On September 23, 2013, at 7:28 PM, bossvina wrote:

    when I'm in my car using SIRIUsxm is much easier and has much more content than any ohter service, IRADIO , PANDORA etc ... I don't need to sync my smart phone to the cars Dash ... and use up my data or iphone battery, plug it in for charging too much trouble.... Please don't compare IRADIO to SIRIUSXM the content is much different... we all know that SIRIUSXM is not just MUSIC....

  • Report this Comment On September 23, 2013, at 8:04 PM, JamesRobertDobbs wrote:

    Dear lord in heaven. If any IP streaming service was a threat to Sirius, Sirius would already be dead.

    Is Apple's service going to be SO superior to Pandora's that it is a significant threat to Sirius, where Pandora hasn't been?

    No. Two different markets. Rick, why haven't you caught on to this fundamental fact yet?

  • Report this Comment On September 23, 2013, at 8:06 PM, bossvina wrote:

    Rick, I thought that you are alot smarter with BBA and a MBA, but after this article . you are showing your ignorance. when you start comparing music services, show some details as to why you are comparing .... do you really think that SIRUSXM is the same as those MUSIC PLAYLIST services no matter who they are .....

  • Report this Comment On September 23, 2013, at 8:23 PM, indycolt17 wrote:

    Holy crap! When did Apple sign up all the content? I thought Apple was strictly music! I'm cancelling Sirius right now.....can't wait to listen to NFL Network, ESPN, and Fox Sports, etc... on iTunes radio. Thanks for the 'heads up' Rick! As a return favor, be aware that my new toaster has digital controls that make it look like a radio. I assume that it too will lead to the demise of Sirius.

  • Report this Comment On September 23, 2013, at 10:39 PM, Austin77478 wrote:

    Rick is probably laughing right now. He knows how to stir Sirius' pot. I don't take him and CN "siriusly" (pun intended).

  • Report this Comment On September 24, 2013, at 1:31 AM, BillFromNY wrote:

    As I have commented before, I'm a little concerned over competition from Internet radio. Like everyone else, I've said that Pandora and Sirius are not really competitors because Sirius has tons more content than the streaming jukebox. And Pandora's content is aimed at the young. There are big holes in its song library for people over 40.

    But there are Sirius subscribers, mostly on the younger side, that get the service only for the music, right? Sirius is not cheap, running about $150 annually for a subscription with Internet radio. If only one of twenty auto buyers that would have subscribed to Sirius opt for the cheaper Pandora, or whatever provider, there would be a small but noticeable effect on Sirius' quarterly subscriber report that they have been announcing about a week after the end of a quarter.

    Subscriber growth is Sirius' most important metric now. Every quarter they have surpassed their guidance due to strong auto sales. If they disappoint some quarter their could be a strong selloff like Pandora saw today. And that would make me unhappy to see my paper profit take a dive.

  • Report this Comment On September 24, 2013, at 1:56 AM, BillFromNY wrote:

    THERE could be a strong selloff, not "their".

    Proofread.

    I should have mentioned that if you pay the full price for a Sirius subscription, you are being had. If you try to cancel a subscription, or tell them that you would like to subscribe, but it's a little expensive, then they will start serious price-cutting ending just short of them paying you to subscribe.

    But with their billion dollars in cash, I guess their profit margin is doing OK.

  • Report this Comment On September 24, 2013, at 7:02 AM, Varchild2008 wrote:

    Rick, you forgot to mention that Americabs don't drive cars anymore like you mentioned in a previous post.

  • Report this Comment On September 24, 2013, at 7:58 AM, 67vair wrote:

    Billfromny, sour grapes? Sirius will do fine. Pandora will not. It's obvious you are a Sirius hater/basher.

  • Report this Comment On September 24, 2013, at 8:03 AM, KombatKarl wrote:

    Not really sure why SiriusXM is being compared to Pandora and iTunes Radio. Sure it plays music, but it gives you so much more than that. Can I listen to NFL games, MLB games, Howard Stern, ESPN Radio, NASCAR, comedy, not to mention all the news and religion channels, etc.,on Pandora? Didn't think so.

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