Editor's Choice

Pandora Will Fight the Bigs in the Streaming Content War to Come

Nate is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The longtime CEO of Internet radio service Pandora (NYSE: P) Joe Kennedy is leaving the company. He announced it in the firm's 4th quarter earnings call. Predictably, and with little reason, the shares jumped 20% on the news. I don't say 'with little reason' to say that all has been well under Kennedy's watch at Pandora, just that the market behaves in strange ways to any unexpected input.

Still, it gets me to thinking about the coming thing. Streaming digital content is clearly something that's riiiiight on the edge of really arriving. Large players are starting to get involved in the business and the content providers are beginning to hold out for a larger chunk of the pie. It's going to be an interesting time in this little piece of the technology sector.

Still, Pandora has an enormous lead in the market. It now has approximately 8% of the streaming radio market and could easily grow that significantly if it can stay focused. Of course, it needs to do something crazy like make money with its service. Reports say that analysts are pleased with the recent results when the firm only lost a few cents per share. Right. A recent push toward limiting mobile users access to no more than 40 hours per month is a good step to fixing that problem, regardless of how it makes people howl with anger.

Unfortunately, Pandora is liable to face some real competition in Apple (NASDAQ: AAPL). Apple has long been threatening to turn its iTunes content platform into a streaming music service. If the rumors come true then the Cupertino-based firm has an enormous install-base of iPad and iPhone users to make the pitch. It also already has relationships with the major content providers about licensing. Lastly, there's the ever-present advantage that Apple could decide to deal with Pandora by just kicking the firm off the iOS system completely. That might earn them a lawsuit, but it's one they could survive and Pandora would be wounded by it. Apple's got multiple reasons to succeed in the streaming market and it's a good bet that the firm will come out of this fight in good position.

Another major player that's been trying to enter the market is Microsoft (NASDAQ: MSFT). The firm is attempting to leverage its 45 million+ Xbox Live subscribers into the new(ish) Xbox Music Pass subscription streaming service. It tried something similar with the ill-fated Zune and we all know that didn't work. Still, the company knows how to license content, knows how to sell paying subscriptions and has a large install base to work from. Even if it worked straight from the existing install base it could make significant gains quickly in the music streaming market. Even beyond the streaming, Microsoft is a good investment for a mature portfolio that's heavy in riskier tech stocks.

No discussion of anything technological can be complete without a mention of the hydra that Google (NASDAQ: GOOG) is becoming. If, as rumors now contend, Google is considering leveraging YouTube into a streaming music service then Pandora is in for a rougher ride that anyone expects. There are already people I know who try to use YouTube in this way, as a music player and to combine that fanbase with streaming music? It could be tough to beat, especially with a firm that might not even want to sell subscriptions but further use its advertising network to ad a new dimension to Google Ads. Scary stuff. I'm already on record as being in the tank for Google. They know their goals and work to achieve them, even across a broad, BROAD swath of tech territory.

So, in short, Pandora faces some significant obstacles to its continued long-term success. The firm has been capitalized enough to compete with the big boys, but it's anyone's guess how long it can stay in the game as an independent company. It might just be worth throwing some money at it, though not too much, hoping for a buyout or takeover from one of the bigger firms with more muscle. That, at least, would earn you a nice payday.

Follow Nate on Twitter: @natewooley

More columns by Nate Wooley:

Nate Wooley has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus