Is Pandora the Future of Radio?

Vehicles are no longer merely modes of transportation. These days, we want the technology in our cars to be on pace with other mobile devices we own. Considering nearly 50% of all radio listening happens on the road, it's a natural fit for music streaming services such as Pandora (NYS: P) to be available in our cars.

The tide of broadcast radio has turned. Pandora's locked down more than a dozen deals with automakers in a shift that will undoubtedly disrupt the traditional radio business. Competing for listeners, you've got the outdated AM/FM stations, subscription music, and Internet radio. Let's see how Pandora's services stack up to the competition, and what the auto deals mean for the future of radio.

Internet killed the radio station
Pandora's free service is a notable alternative to the AM/FM radios in most cars today. Pandora lets users create custom radio stations featuring their favorite artists or genres of music. Partnerships with the automakers could help Pandora make further inroads over Sirius XM's (NAS: SIRI) subscription-based model.

With more than 125 million registered users, Pandora far outpaces the 20 million drivers paying for Sirius. Satellite radio loses in another big way: limited selection. Listeners pay for a collection of channels from the Sirius XM lineup, and not for a second does that include any on-demand services, such as Pandora's stations customized to the user or Spotify's ability to create user-generated playlists.

Face the music
Until recently, Pandora didn't have much traction in the vehicle business, where traditional radio and Sirius rule. Flashback to last year, when Pandora only had five auto deals -- today, the music company has nearly two dozen agreements with automakers, and that number continues to grow.

Positioning itself with connected devices and strategic partnerships won't have an immediate payoff for the company, but it should lead to profits down the road. Pandora's now available on more than 450 electronic devices and is well on its way to replacing car radios.

Sing and drive
Last year, GM (NYS: GM) outfitted Chevy models with its MyLink system, which lets drivers access and control their Pandora accounts from the vehicles dashboard. While GM continues to improve the integration of online services, the carmaker currently offers Pandora in its Buick, Chevrolet, and GMC vehicles.

New relationships with Ford (NYS: F) , Acura, and Kia show Pandora gaining major speed in the auto sector. Ford's recent announcement that it will be adding the Internet radio company to its truck lineup for 2012 is further proof that Pandora's on track to reach more drivers in the year ahead.

Final thought
Pandora should see growth opportunities continue to play out in 2012 as its service integrates with more platforms. Data connections remain an obstacle for more widespread acceptance in the auto space; available systems that support full integration with car stereo controls still require a smartphone to handle the actual music streaming.

However, the upward trajectory of Pandora in automobiles is well in place. For that reason, I'm pressing play on Pandora and giving the stock thumbs up in my CAPS call. Radio's gone through quite a transformation lately, and while it's still early in the game, Pandora is well positioned to become a leader in the space.

Find out what other American companies are set to dominate the world --click herefor the free report from The Motley Fool.

At the time thisarticle was published Foolish contributor Tamara Rutter does not own any stocks mentioned here. Follow her on Twitter, where she uses the handle: @TamaraRutter. The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of Ford Motor and General Motors. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.