Start a Rumor About Apple Entering a Business, and Watch the Competitor's Stock Collapse

Apple’s (AAPL) Internet radio service is bludgeoning music streamer Pandora Media (P) even before any official confirmation that the product exists. Pandora trading was halted on Thursday amid a flurry of selling after Bloomberg News cited sources saying that Apple’s new service would launch early next year. Pandora shares are down more than 40% since rumors of Apple’s plans starting floating last month.

P Chart

P data by YCharts

Currently, Pandora rules the world of Internet radio by carrying some 78% of the market for listening time. That’s up from 64% a year ago. But the competitive threat is serious, as newcomers look to offer ways around some of the more annoying traits of Pandora. Apple, for example, is reportedly signing up record labels without the restrictions Pandora endures, which limit the number of times a Pandora user can hear a certain song and forces them to sit through music they didn’t pick. Apple listeners, supposedly, will be able to listen to nothing but Rihanna all night if they want. Pandora already has competition from Spotify, Sirius XM (SIRI) and Clear Channel’s Heart Radio. One can expect Google (GOOG) and Amazon (AMZN) to eventually get in this market, too.

The analyst take on Pandora’s situation is mixed. Buy recommendations, one as recently as late August, still outweigh others. But Nomura Equity Research initiated coverage last month with a “reduce” rating on the shares this week.

Perhaps a competitive edge for Pandora might lie in a more technical aspect of music streaming: the data suck. Car listeners are key to Pandora’s success – some 11 million people listened to it while driving last year – and these listeners are using up precious gigabytes on their wireless data plans for the privilege. Now that wireless carriers are doing away with unlimited data plans, streamers are more aware than ever of the large amount of data it takes to stream anything.

Just how much they use is an ongoing debate. In online discussions, customers have questioned Pandora’s claims about data usage, claiming they have eaten away much more in their own experiences. Data usage calculators at Verizon (VZ) and AT&T (T) websites show different numbers for audio streaming, but both indicate you’d use about three-quarters or more of a 2G monthly plan by audio streaming just 1 hour a day.

We’re still waiting for the official study (and the official products) to see which app uses more data. But if an overage bill comes in with one of those competitor services, those obscure songs you can’t skip on Pandora will probably sound good enough.

Dee Gill is a contributing editor at YCharts, which includes the just-released YCharts Pro Platinum for professional investors.



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