iTunes Radio does not Worry Pandora

iTunes Radio does not Worry PandoraBOSTON, MA –  Speaking at a conference in Boston, Mike Herring, CFO of automated music recommendation service Pandora (NYSE:P), said that the launch of iTunes Radio service will increase awareness of digital radio and accelerate the move to it from traditional broadcast radio.  Mr. Herring compared Apple’s (NASDAQ:AAPL) long-awaited radio service to Clear Channel’s (NYSE:CCU) IHeartRadio.  ‘When iHeartRadio launched a couple years ago, we had the same questions.  We’ve gone from 50 percent market share to 70 percent market share, and they’ve stayed flat. We won’t do much different.’

The company currently owns the top spot in the internet radio market with more than 200 million registered users, of whom 71 million are regular users.  iHeartRadio passed 30 million users in May and Spotify has more than 24 million active users.  However, Pandora only represents 7 percent of U.S. radio listening and Herring’s contention that Apple’s iTunes Radio might underestimate Apple’s power to disrupt markets as the company has done with book, music, and mobile phones.

Another advantage that Apple will have over Pandora is its global reach.  While Pandora has rights to music in the U.S., Australia, and New Zealand, Apple’s direct agreements with music labels and publishers give it rights (in most cases) to the 100 countries where iTunes operates – iTunes Radio will launch in the U.S. in the fall will other countries being added over time.

According to Mr. Herring, Pandora will enter new countries if the deals are viable for the company adding that in Australia and New Zealand, associations of songwriters and performers were willing to set rates that made the economics work for Pandora.

The company has recently come under fire for the low royalty payments that Pandora has paid musicians for broadcasting their works.  While the company asserts that it is paying artists much more than FM radio, licensing costs still take up roughly two-thirds of Pandora’s revenue, which is mainly driven by ads.

On Friday, Goldman Sach’s Heath Terry upgraded the company to ‘buy’ with a price target of $ 27 per share noting that for that for the first time ad growth surpassed the cost of buying music licenses.  Mr. Terry also noted that subscription growth has accelerated in the past three quarters based on continuing expansion across platforms including cars, televisions and on Android phones.  Shares of Pandora were up 2.47 percent on Friday to close at $ 20.34.

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About the author

Audrey is a senior editor for the business and finance sections.