Shares are up 14% in late afternoon trading and touched an all-time high of $32.45 today after Pandora unveiled surprisingly strong audience results for December — and a plan to introduce in-car advertising. The streaming music company had 76.2M active listeners in the month, up from 67.1M a year ago, and accounted for 8.6% of U.S. radio listening, up from 7.6% last year. The results “once again demonstrate the resilience of the service in the face of iTunes Radio competition [which launched in September] and Spotify,” says Cowen and Co. analyst John Blackledge. The company also announced at the International CES confab that this month it will harness users’ smartphone connections to introduce in-car ads for companies including BP, Ford, State Farm, and Taco Bell. “Nearly half of all radio listening takes place in the car,” says Chief Marketing Officer Simon Fleming-Wood. ”We knew early on that to redefine radio, we would need to seamlessly deliver Pandora through in-dash entertainment systems.” The service says it can offer “a more targeted audience than traditional radio can provide” by providing 15- and 30-second ads to “car-bound audiences” via more than 270 devices that offer Pandora in cars. The company says that it will pump fewer ads to drivers and passengers and it does to Pandora users on other platforms — except those who subscribe to the ad-free Pandora One premium service. Wedbush Securities’ Michael Pachter …
Pandora shares are down about 11% at mid-day, a little more than a week after the company rallied from its report that sales were stronger than expected in Q1. Investors are anxious following The Wall Street Journal‘s report this morning that Apple agreed over the weekend to let Warner Music’s publishing operation collect 10% of the ad sales from a planned Internet radio service. The amount is twice as much as Pandora shares with publishers and the paper says it could “pave the way for other major publishing deals to follow.” Apple would like to unveil its Web service next week at its annual developer’s conference in San Francisco. Pandora “have traded up significantly” in recent months due in part to Apple’s slow progress in securing the rights for its rival initiative, Wedbush Securities’ Michael Pachter recently noted. Despite the progress with Warner, Apple probably won’t launch its new service unless it can also agree on terms with the publishing units of Universal Music and Sony Music, the paper says.
Pandora Media’s down 7.7% this afternoon after CNET reported that Apple is “close” to enlisting Universal Music and Warner Music for an iTunes-linked streaming service. Apple would make it easy for users to buy songs that they like, and would share as much as 45% of the revenue from the ads it sells on the service. That appeals to the music companies even though they’d collect less for each stream than they do from Pandora. Apple wants to strike licensing deals with Sony Music, music publishers and others in time to introduce the service this summer in the U.S. as well as the UK, France, Germany, Australia, and Japan. Last month Pandora CEO Joe Kennedy startled investors by announcing that after a decade at the helm he plans to leave the company after it picks a successor. The stock is up 39% so far this year.
Joseph J. Kennedy said he would be leaving Pandora Media after a 9-year tenure. His announcement was made to his Board on Tuesday and in an analyists call on Thursday. Now the Internet radio service will search for a successor. The chairman/CEO may be getting out just in time. In September 2012 the stock was pummelled by reports that Apple may launch a rival ad-supported music service. Pandora investors fear that the streaming music service — which tailors selections to users’ tastes — could be crushed by the electronics giant. Pandora has about 150 million registered users, and 55 million of them listen frequently giving it a significant head start over Apple. But payments for music rights eat up about 60% of its revenues which has severely impacted Pandora’s profitability. Since that report, Pandora’s stock has righted itself and the company has posted better-than-expected earnings and growth for its fiscal 4th quarter and full year.
Many Pandora Media investors fear that the streaming music service — which tailors selections to users’ tastes — could be crushed by the electronics giant. Pandora shares are down more than 17% in early trading after The Wall Street Journal said that Apple’s negotiating with recorded music companies for the rights to develop a similar ad-supported offering. Apple would have the luxury of introducing its service as an iPhone and iPad app that would learn about user preferences by looking at the tunes they bought from iTunes. Apple wants music companies to OK terms that would enable it to stream specific tunes more frequently than Pandora does, and that allow for more interactivity. But those conversations aren’t close to being completed, so don’t expect an announcement next week when Apple likely will introduce a new iPhone and possibly iPod. Pandora has about 150M registered users, and 55M of them listen frequently giving it “unrivalled scale among free music service providers and a significant head start over Apple,” Wedbush Securities’ Michael Pachter says. Pandora also works on Android devices. But Pandora’s payments for music rights eat up about 60% of its revenues, which has “severely impacted its profitability,” Pachter says. Apple had more than 400M iTunes accounts in June.
This could give Spotify a huge boost in its competition with Pandora and others to become the dominant streaming music provider for Web users. Although the announcement from the companies is short on details, it says that Yahoo‘s Media Network — which reaches about 700M unique users each month — will integrate and promote Spotify, a service that can play almost any song a user wants on demand. The roll out will begin with Yahoo Music, and then fold in other destinations including Yahoo Movies and OMG. In addition, Yahoo will create an app for Spotify’s 10M+ active users enabling them to access Yahoo’s original entertainment. Spotify CEO Daniel Ek crows that the deal with Yahoo will give his company an opportunity to “reach their massive audience.” Yahoo’s interim CEO Ross Levinsohn says the partnership helps to fulfill his goal to provide “premium experiences across screens…What Daniel and his team are doing is changing an industry, and we’re thrilled to be partnering with them.”
Even if you don’t have Spotify on your computer or smartphone screen, you should put it on your radar. Music execs tell me that the streaming service, introduced in the U.S. last July, is beginning to break from the pack of digital music providers which includes Pandora, Rdio, Rhapsody, MOG, and Slacker. ”The big question is whether it will become the iTunes of the streaming media market,” one tells me. Credit Suisse’s John Blackledge took note of Spotify yesterday in a 63-page report initiating coverage of Pandora Media, which offers a radio-like streamed service. “There is a lot of discussion and buzz around Spotify,” he says noting that it is “looking to siphon market share” from some of the giant sellers of downloaded music including iTunes and Amazon. Spotify has about 10M active users worldwide. (The company won’t break out the figures by country.) The vast majority use its ad-supported, free service which — in the U.S. – offers unlimited access to its library of more than 16M songs including tunes from all four major recorded music companies: Universal, Sony, Warner, and EMI. (No Beatles, though; iTunes has exclusive online rights to the group’s catalog.) The company’s goal, though, is to nudge users into paying for a subscription. About 3M people pay either $4.99 a month (for unlimited, ad-free streams to computers) or $9.99 (for unlimited, ad-free streams to mobile and digital devices as well as computers, and the ability to download songs for off-line listening). Users can listen to specific songs on demand, or let the service create playlists based on a particular performer or other criteria. While other companies offer similar services, execs say that Spotfy one of the easiest to use — and integrates well with Facebook, where users can share songs, playlists and recommendations. Indeed, only Facebook members now can sign up for Spotify.
EL SEGUNDO, Calif.– DIRECTV (NASDAQ: DTV), one of the world’s leading providers of digital television entertainment services, and Pandora (NYSE: P), the leading personalized radio service, are now giving customers unlimited access to personalized radio stations that play only the music they love from the comfort of their homes. Customers can easily search for their favorite artists, songs or musical genres and create personalized radio stations by using DIRECTV’s new 1080p HD Guide, one of the industry’s most intuitive and sophisticated HD on-screen guides.
The Dow Jones U.S. Media Index was down 3.5% today while the DJ Industrial Average was off 2.4% — and Goldman Sachs may have contributed to the imbalance: It downgraded the entertainment sector today to “neutral” from “attractive” saying that ad sales will be weaker than expected as the overall economy softens. That came as the market also reacted to Greece’s report over the weekend that it will fail to hit its deficit-reduction targets for the year — increasing the possibility of a default. CBS, -7%, was the biggest loser among the major media companies. It was followed by Viacom (-5.1%), Sony (-4.7%), Disney (-3.9%), Time Warner (-3.4%), and Comcast (-2.2%). In the broader media market, broadcasters Westwood One, LIN TV, Rado One, and Entercom were down by more than 10%. Pandora, Live Nation, Crown Media and Cumulus Media lost more than 8% of their market value. A few companies were up for the day including Yahoo (+2.7%), Regal Entertainment (+2.0%), Coinstar (+1.6%) and Time Warner Cable (+0.2%).
The bears are back. After a relatively calm week, stocks prices across the board — including in media — are tanking today following reports that point to rising unemployment and inflation, and weakness in manufacturing. An hour before the market close, the Dow Jones, S&P 500, and NASDAQ indexes for media stocks each were down at least 5.4%. Among the Big Media giants CBS is -10.7% followed by Time Warner (-6.1%), Sony (-5.7%), News Corp (-5.2%), Viacom (-5.2%), Comcast (-4.8%), and Disney (-3.2%). Elsewhere on our watch list, Pandora Media (-12.9) is taking the biggest hit with LIN TV -9.4%. Others falling at least 8% include Gannett, Live Nation, Entercom, IMAX, Radio One, McGraw-Hill, and Discovery. Those off at least 7% include Cablevision, Amazon, TiVo, Netflix, McClatchy, Coinstar, Arbitron, and Scripps Networks. And companies down at least 6% include Barnes & Noble, Washington Post, E.W. Scripps, Sinclair Broadcasting, Outdoor Channel, and Dish Network. The only gainers are Lionsgate (+0.3%) and Cinedigm (+1.3%).
Media stocks likely will take even more punishment if the economy weakens. When times are bad shares of companies with high fixed costs, lots of debt, and that depend on ad sales, fall more dramatically than the overall market, Needham & Co analyst Laura Martin says today. She says that Discovery may be the best media stock to own now — but adds that it would be even safer for investors to own a fund of stocks that mirrors the S&P 500.
UPDATE, 2 PM: The market deteriorated as the day wore on, continuing the worst market slump since 2008. The Dow Jones U.S. Broadcasting and Entertainment Index closed down 7.3% — exceeding the 5.6% decline in the Dow Jones Industrial Average, 6.7% drop in the Standard & Poor’s 500, and 6.9% fall at NASDAQ. CBS’ -10.3% slide made it the leading loser among media’s Big Guns. It was followed by News Corp (-7.7%), Viacom (-7.1%), Comcast (-6.6%), Sony (-6.4%), Disney (-6.1%), and Time Warner (-5.8%).
Double-digit losers include AMC Networks (-12.8%), LIN TV (-12.7%), Sirius XM (-12.7%), RealD (-12.6%), Cumulus Media (-11.9%), TiVo (-11.4%), Entercom (-10.9%), Westwood One (-10.8%), and E.W. Scripps (-10.3%). Those losing at least 9% include National CineMedia, Dish Network, Arbitron, Sinclair Broadcasting, Rovi, Outdoor Channel, Crown Media, Electronic Arts, Cablevision, and Coinstar.