NY Post: Poison Apple for Pandora?

February 19, 2011


Pandora is feeling the sting of Apple’s app slap.

The music streaming service, with more than 80 million subscribers and heading toward an IPO, could see its subscription revenue come under extreme pressure in the wake of Apple’s new subscription plan, which has the tech giant grabbing 30 percent of payments made through its App Store.

And Apple’s App Store is a key driver of Pandora’s subscription sales.

Pandora is seen as vulnerable to Apple’s policies, and the subscription shock could affect its bid to go public, according to a source close to Pandora’s IPO process.

“I think it could delay the Pandora IPO,” said the source, who is connected with one of the underwriters of Pandora’s public launch.

“Apple has crossed the line. They are either going to have to walk this back, or face enforcement action or a lawsuit.”

The US Justice Department and the Federal Trade Commission have begun a preliminary look into Apple’s app policy, The Wall Street Journal reported yesterday.

Apple’s heavy levy will affect more companies than Pandora.

Rhapsody, Last.fm and Spotify, which also operate subscription-based music streaming services, are all scared for their businesses because the 30 percent cut in revenues would leave little cash after they pay for the rights to their content.

Pandora is not nearly as reliant on subscriptions as the others, but subscriptions are increasing in importance.

The company rang up revenues of $90.1 million during the first three quarters of fiscal 2011 — with $12.2 million of that, or 13.6 percent, from subscriptions and other categories.

The rest of the revenue came from advertising. In the same period the year before, subscriptions and other categories were only 8.4 percent of overall revenue.

“Apple, in this instance, and in a few other instances, is being more anti-competitive than Microsoft ever was,” said Ted Cohen, the managing partner of TAG Strategic, a digital media consulting firm.

There is broad fear among music services that Apple is trying to squash them ahead of launching its own similar service.

“Removing Spotify as a competitive threat is certainly convenient for Apple,” a music source said.

“They want control of everybody in the Apple ecosystem. If Rhapsody or Spotify goes out of business, well, that’s just roadkill,” he explained.

Pandora would face a similar threat from Apple competition, according to James McQuivey, an analyst with Forrester Research.

Apple’s policies dictate that the tech giant can eliminate direct competitors from its platform.

If Apple decided to launch a music-streaming service and bundle it on their products, it could say, “We told you that if you have an app similar to ours, we can reject it,” McQuivey said.

Apple shares closed Nasdaq trading at $350.56, down $7.74, or 2.16 percent.

With Josh Kosman and Claire Atkinson

Posted by Ted • Saturday, February 19, 2011 .