Competition in the streaming music space is quickly reaching a fever pitch.
Only a few years ago, this high-growth space was only the dominion of streaming radio upstart Pandora Media (P +0.00%). However, fast-forward to today, and the space is occupied by a whole host new entrants, both large and small, that threaten to sink Pandora's growth story once and for all.
As has always been the case in digital music, Apple (AAPL +2.66%) is the 800-pound gorilla in the room giving it the clout to challenge, and possibly beat, even those with a massive head start like Pandora. However, Pandora's shares have largely continued to thrive even after Apple released what many believed would be a Pandora-killer in its iTunes Radio last year.
Source: Apple.
Apple's potential to dominate streaming music like it already controls digital downloads became all the more apparent when a recent report surfaced, which, not-so-coincidentally, sent Pandora shares substantially southbound as well.
Apple to double down on radio?
According to a recent report from Billboard, Apple is in talks with senior radio executives to expand the scope of its iTunes Radio service into on-demand radio in addition to the current radio-based model found in iTunes Radio.
This would help extend Apple's streaming presence to an increasingly popular part of the streaming market that's currently dominated by the likes of Spotify but has recently seen new entrants like Beats Audio also move into the space. In addition, the Billboard report also claims that Apple also considering making a version of its iTunes software available via Google's Android app store.
In sizing up both of these possible moves, it appears Apple is at least in part motivated to counteract the possible erosive effect other streaming players like Pandora and Spotify have had on music downloads, much to Apple's chagrin. For example, one data provider recently estimated that digital music downloads have declined 13% year over year. Apple appears to be looking for new channels like on-demand streaming and Android app store distribution to stymie these trends.
Source: Pandora
Creators of their own demise?
Make no mistake, Apple's clout, especially the intersection of media and technology where Pandora and Spotify each sit, is hard to overstate. One major advantage Apple holds is its clout among the various record labels to whom Apple's iTunes has provided billions of dollars in download fees since it launched in 2001. Apple also holds a key advantage as it controls a sizable chunk of the software platforms on which Pandora and Spotify operate.
According to reports, Apple has been considering separating out iTunes Radio into an independent app that it could prominently position in the coming update to its iOS mobile software. This again highlights how Apple holds more cards in its ability to influence its own streaming destiny, especially when compared to names like Pandora and Spotify. The deck is stacked in Apple's favor, to an extent.
Both Pandora and Spotify are strong brands that have both established early leads and loyal user bases in their respective specialties within the streaming music space. As such, it stands they could each weather Apple's entry in this space to some degree.
But as the company that looms largest in digital music, Apple taking any of these aforementioned steps could create meaningful headwinds for growth companies like Pandora or Spotify, and that's certainly worth watching closely as it plays out in the months ahead.
