ITunes Radio is riding a trend of lean-back digital listening, but Apple’s new Internet radio service isn’t a Pandora killer yet. In October, the first full calendar month the two services competed against one another, Pandora’s streaming hours rose 8.1% to 1.5 billion from 1.4 billion the prior month.
The number of people who listened to Pandora in October fell 2.5% to 70.9 million from 72.7 million in September. But the October numbers should put to rest-for the time being-predictions that Apple would use its massive iTunes user base and legendary brand affinity to knock Pandora from the top of the Internet radio leader board.
Expectations for iTunes Radio have been high. During Apple’s earnings call on Oct. 28, CFO Peter Oppenhiemer revealed that 20 million iOS 7 users had tried iTunes Radio. The following week, Canaccord Genuity released survey results that showed iTunes Radio had made inroads with Apple device owners. Of all consumers who use Apple’s iOS mobile operating system, 29% had tried iTunes Radio, 12.6% were listening to both Pandora and iTunes Radio, and 2.6% had given up Pandora for iTunes Radio. About three in four people surveyed (or 72%) were running the iOS 7 update that includes iTunes Radio.
Quickly attracting 20 million listeners is an achievement unto itself. No other company but Apple could make inroads against Pandora in such a short amount of time. But what’s most important is how many listeners iTunes Radio will attract in the long term. ITunes Radio’s initial 20 million listeners might not return in full numbers the following month. After all, the Internet era is filled with stories of services whose millions of early adopters left them for another shiny, new toy. “The barrier to experiment in online music is pretty low,” Gartner analyst Mike McGuire says.
Better results will require a better product. Pandora outscored iTunes Radio in various user-satisfaction metrics in the Canaccord Genuity survey. More people surveyed believe Pandora plays the songs they want to hear (72% to 63% of iTunes Radio users). While 78% of those surveyed gave Pandora a “positive” or “very positive” rating, only 66% of iTunes Radio users did so.
Pandora has withstood new product launches before iTunes Radio. There has been a long list of supposed “Pandora killers” through the years, from communications giant Clear Channel to scrappy upstart Songza. The media trumpet with fanfare the arrival of every radio feature woven into on-demand services like Sony Music Unlimited, Xbox Music and Spotify.
The sharks were thought to be circling Pandora in June 2012. Two notable events occurred that month. First, a blog post by BTIG analyst Rich Greenfield warned Pandora investors of Songza’s popular iPad app. His remarks sent Pandora shares down 11.2% during a two-day span and chopped $209 million from the company’s market value. A week later, Spotify launched a free Internet radio service available to U.S. users of its mobile app.
Yet Pandora has thrived in the midst of this competition. Since June 2012, Pandora’s monthly listener hours are up 36% and monthly active users up 30%. And since the Songza scare, Pandora shares are up 167% to $26.45 and have recently exceeded $28. With the market behind the company, Pandora issued a secondary stock offering in September that grossed the company nearly $400 million. Although still unprofitable, Pandora has convinced Wall Street it’s on the right path.
Pandora’s approach to music has never looked more sensible. On-demand music services Rdio and Rhapsody recently revamped their radio products by offering Pandora-like personalized radio. Why not allow customers to use one app instead of two? Rhapsody executive Paul Springer says half its listeners are also active listeners of Pandora. The company hopes a better radio experience will add enough value to keep subscribers from occasionally straying.
“Historically we’ve been a lean-forward service,” Springer says. “Subscribers love that, but they want to balance lean-forward with lean-back.”