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Today in Connected Consumer

Shares of Pandora were getting hammered this morning in the wake of a Wall Street Journal report that Apple is in talks with the major record companies about launching an ad-supported rival to the internet radio service. Though Pandora has more than 54 million users, making it by far the biggest music streaming service, Apple’s huge installed base of MP3 players, smartphones, tablets and laptops could make it a formative competitor. The question that has everyone puzzled this morning, however, is why? Why would Apple want to get into the ad-supported streaming business by creating a competitor to Pandora, especially when it could simply buy Pandora for what, to Apple, would be walking-around money? As an initial matter, the whole thing sounds far more exploratory at this point than real, but as for why streaming, Apple can see which way the online music wind is blowing these days as well as anyone, and it’s not blowing in the direction of the iTunes Music Store. As for why build instead of buy, the Journal report answers the question obliquely, noting the Apple is seeking to negotiate licenses directly with the labels rather than rely on the compulsory license Pandora relies on, with its attendant royalty structure that make it difficult if not impossible to make money in internet radio.