Pandora Stock Pummeled On Reports That Apple May Launch A Rival Music Service

Many Pandora Media investors fear that the streaming music service — which tailors selections to users’ tastes — could be crushed by the electronics giant. Pandora shares are down more than 17% in early trading after The Wall Street Journal said that Apple’s negotiating with recorded music companies for the rights to develop a similar ad-supported offering. Apple would have the luxury of introducing its service as an iPhone and iPad app that would learn about user preferences by looking at the tunes they bought from iTunes. Apple wants music companies to OK terms that would enable it to stream specific tunes more frequently than Pandora does, and that allow for more interactivity. But those conversations aren’t close to being completed, so don’t expect an announcement next week when Apple likely will introduce a new iPhone and possibly iPod. Pandora has about 150M registered users, and 55M of them listen frequently giving it “unrivalled scale among free music service providers and a significant head start over Apple,” Wedbush Securities’ Michael Pachter says. Pandora also works on Android devices. But Pandora’s payments for music rights eat up about 60% of its revenues, which has “severely impacted its profitability,” Pachter says. Apple had more than 400M iTunes accounts in June.

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