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Pandora and Sirius XM Don't Have to Worry About This

By Rick Munarriz - Sep 17, 2013 at 3:35PM

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Rdio's deal with Cumulus Media may seem troublesome for existing audio services, but it could be a blessing in disguise.

A critically acclaimed yet fledgling app is about to get stronger, but that's nothing for Pandora (P) or Sirius XM Radio (SIRI -0.66%) to worry about.

Terrestrial radio operator Cumulus Media (CMLS -0.32%) announced yesterday that it would be taking a "significant" stake in the parent company behind the Rdio app.

Rdio is a highly rated music platform offering ad-free access to roughly 20 million songs for as little as $5 a month for Web access or twice as much for users who also want to stream on mobile devices.

However, now that Cumulus is on board, Rdio is going to embrace the ad-supported freeloader option that Pandora has offered for years and that Apple (AAPL 0.49%) will be making available tomorrow. Cumulus will also put its sales team to work, giving the marketers reaching Cumulus listeners through its 520 radio stations access to Rdio streams, too.

On the surface, this would seem to be bad for Pandora and, to a lesser extent, Sirius XM. Rdio is going to be promoted on hundreds of radio stations to terrestrial radio listeners. Rdio's new ad-supported service -- along with its original premium plans -- will gain exposure and grow in popularity. However, the only direct threat being posed here is to Clear Channel's (NASDAQOTH: CCMO) iHeartRadio. Rdio will now be a similar terrestrial radio-anchored app, and it also wouldn't be a surprise if Cumulus drops out of participation in iHeartRadio's network when its current deal ends next year. 

However, this could ultimately be great for Pandora by educating more old-media marketers.

Cumulus Media delivered $281 million in revenue in its latest quarter, more than double the $128.5 million in ad revenue that Pandora generated during the same period. A lot of that may be local advertisers, but as online marketing gets better at targeting individual users, it's going to be a goldmine for Pandora to have a larger pool of sponsors seeking out the market leader to generate leads and brand awareness.

Apple's iTunes Radio -- rolling out in tomorrow's iOS 7 update -- will also bring new advertisers into the medium. 

Naturally, there will come a point where having too many competitors will be a bad thing. Sirius XM and Pandora have grown at healthy double-digit percentage clips in the past in this competitive climate, but we're adding a beefed-up Rdio and Apple's consumer appeal into the mix. However, all of this also means validation for online streaming and an opportunity for Pandora to pad its Rolodex and for Sirius XM Radio to stand out with its receiver-based monopoly.

 

Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Pandora Media. It recommends and owns shares of Apple. 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.

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Stocks Mentioned

Pandora Media, Inc. Stock Quote
Pandora Media, Inc.
P
Cumulus Media Inc. Stock Quote
Cumulus Media Inc.
CMLS
$9.39 (-0.32%) $0.03
Apple Inc. Stock Quote
Apple Inc.
AAPL
$172.95 (0.49%) $0.85
Sirius XM Holdings Inc. Stock Quote
Sirius XM Holdings Inc.
SIRI
$6.74 (-0.66%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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