Why Pandora Isn’t Direct Competition to Radio

By Relmor Demitrius -

The most obvious and first statement that can be made on the topic is direct and to the point.  Why isn’t Pandora (NYSE: P) competition for radio?  Because it isn’t radio.  Ok I may buy that, you say, but then define what is radio to you then?  Fair enough.  Since the definition is of a more standard noun variety in the dictionary, I will simply attempt to identify the sector.  Take for example Sirius XM Radio (NASDAQ:SIRI).  Since it is a tradable equity, and I cover Sirius XM, I will use it as an example and identify what the company is, in what space it competes, and who exactly are the competition in relation to  their business.  As it is generally accepted that terrestrial radio is competition for Sirius XM, by association  Sirius XM competes with generally the entire radio industry and the best qualities it has to offer.

In the past Sirius XM has been categorized as a technology company by some.  Lately it has been considered more of a media company, in the broadcast entertainment field more specifically.  They do have their own content and redistribute third party content as well.  So yes, they are indeed a media company by definition.  They also generate unique content and they “distribute” some forms of communication, news, or public service.  They broadcast a product that is in several ways interactive with the audience.  DJ’s, content, live interviews, and live call in shows make this company an interactive media company.  They are also a radio company in the broadcast space.  They deliver their content via smart phone, internet, and of course satellite receiver network.  This makes them unique in their industry, but that is a minor point only in this articles discussion.  The dictionary defines media as such..” the means of communication such as radio and television, newspapers, and magazines, that reach or influence people widely.”

Even by this basic definition, Pandora does not qualify as competition.  One important aspect of a media company is indeed the ability to communicate.  When I discuss Pandora with investors they have a hard time understanding this concept.  I’m not exactly sure why, but it’s an important element of a media company.  Pandora is simply a random music generator with no original content and no verbal interaction with live people in any way shape or form and as such does not qualify as a media company.  They name themselves as such, but they are a foolish to do so.  They are an internet company sure, and yes they are an entertainment company.  Can they report the news?  Can they give news updates?  Can they give the weather?  Can you receive data services from Pandora?  Can you call in to your favorite show and ask about that song you just heard?  Can you listen to live concerts and interviews?  Can you even hear a concert?

I would compare Pandora to an online jukebox you have less control over.  I would prefer a service like Rhapsody over Pandora, as it’s more personal and direct to what I want.  If I choose an artists on Pandora, I may only hear them a few times until I have to move on to other things, get out of my car, or deal with kids.  In those few plays I may not even hear a song I like by them.  If I have Rhapsody or a similar service I can directly put on whatever song I want at any time.  I would think Pandora is more competition to the IPod and Rhapsody, Spotify and for sure Slacker than Sirius XM or I heart Radio (which is actual radio, just terrestrial radio stations).  I think it is actually amusing to hear Pandora supporters plead their case as competition to radio.  You can say it all you want, authors can say they are till they are blue in the face, Pandora just isn’t competition and never will be with their current product and model. It’s like comparing apples and oranges, like calling Amazon.com competition for Apple.  Sure, they cross some business aspects, but no one in their right mind would mention Amazon.com as a company that could take down Apple or even greatly influence their revenue stream;  Microsoft sure could,  Google maybe,  Amazon.com, no way.  They compete in a couple of areas the digital book space and online music.  Actually Amazon.com is more of a competitor to Apple in reality than Pandora is to Sirius XM.

The iPod is considered competition by Sirius XM in their filings.  Why do I mention this?  Because Pandora cult members always point to that as proof that indeed they too are competition.  If that were true, then the iPod would have had an effect on Sirius XM by now as it’s been around for about 10 years at this point.  Media members would be saying Apple is a competitor to Sirius XM Radio.  They aren’t,  you know why,  because the Apple iPod isn’t competition for Sirius XM Radio;  and people covering Apple would be mocked out of their media and journalistic existence if they tried to make that case.

It was beneficial for Sirius XM, especially when trying to convince the FCC to allow the merger, to argue themselves that there was significant competition in the space.  They did list the iPod as one such competitor and a risk to their business.  They also listed HD Radio, which should be disappearing off the face of the planet any day now. If you want to look at numbers and compare them too we can.  But I already wrote that article.  It’s not pretty on that end either.  Here is the link to that article.   http://www.kingofalltrades.com/2011/06/14/why-the-pandora-ipo-is-irrelevant-to-sirius-xm/

Another argument is that to ignore a potential competitor is a foolish move as an investor.  I agree, I never ignore my competition.  When I see some, I’ll let you know.  Right now Sirius XM’s only competition is showing the world that their product has tremendous value at its current price.  Until I see a radio or media company offer a similar service, I will continue to sleep very well at night as a listener and stockholder.

Some may argue, well you don’t know the future, you can’t be sure one day Pandora won’t be bigger than Sirius XM. That is true I don’t know that; but I invest on facts and trends, not hopes and dreams.  If one day the world wakes up and no longer needs or wants radio but demands a jukebox, then Pandora stockholders will be very happy.

Disclosure:  No Position P; Long SIRI