Another premium streaming music service is ready to meet its coda. Rdio filed for bankruptcy protection on Monday, unloading key assets to Pandora Media (NYSE:P) for $75 million that creditors will divvy up.
Rdio isn't acting like a platform that's about to be unplugged. "For the time being, the service continues unchanged," it's proclaiming through its official blog. However, with Pandora not making any bones about its intentions to inherit the technology, intellectual property, and many members of the Rdio team, this has all the makings of another "acquihire" event in the tech space. Rdio expects to be incorporated into an expanded Pandora platform by late next year.
Pandora realizes that it needs some skin in the on-demand market where it can push ad-supported streams or subscriber-based plans without commercial interruptions. It's the secret recipe for Spotify, and it's essentially where Apple (NASDAQ:AAPL) arrived this summer with the subscription-only Apple Music service.
The market views Pandora as a music discovery site whose data-crunching algorithms serve up customized playlists, but growth has slowed in recent quarters -- and now it's stalled. Pandora provided ear candy to 78.1 million active listeners by the end of its latest quarter. That may be a smidgen above the 76.5 million users it had on its rolls a year earlier, but that's actually a sequential decline from the 79.4 million active listeners it was serving just three months earlier. The amount of content consumed also took a sequential slide.
The arrival of Apple Music this summer is being credited by many for the slump, but since it operates on an entirely different model -- you have to pay Apple $10 a month for access, and you can play any song you want -- it's easy to see why Pandora would snap up the bankrupt remains of an on-demand pioneer. Pandora has always struggled to get folks to pay up for its platform. Less than 5% of its listeners pay for the ad-stripping Pandora One offering. Even Spotify, the market darling of on-demand streaming, has just a little more than a quarter of its users as premium subscribers.
This brings us to Apple Music. It got off to a strong start with 6.5 million paying subscribers, but history hasn't been kind to the services that rely primarily on subscription revenue. Streaming audio's brief history is already littered with pioneers that couldn't cut it with models that leaned on tollbooths. Rdio couldn't make it work, and it offers both a premium and a free ad-supported format. Beats Music -- which Apple went on to acquire -- couldn't make a dent in the market even with celebrity backers and a Super Bowl ad.
So, yes, Rdio is biting the dust, but don't assume that a killer brand and a captive audience will steer Apple Music away from the elephants' graveyard. There are only two proven giants in streaming music, and if Apple ultimately wants to survive in this market, it may have to buy one or the other.
Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple and Pandora Media. 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.