Spotify Is the Next Potential Pandora Killer

Investors may not have taken a shine to Pandora Media (NYS: P) , but the competition is another story.

Overseas darling Spotify is the latest digital music speedster to embrace Pandora's "music discovery" model, allowing listeners to submit a song or artist and have a personalized song list stream with similar tracks.

Spotify is no pushover. The New York Times indicated last month that the music service was raising money in a financing round that pegged Spotify with a $4 billion valuation. For those scoring at home, Pandora -- after going public at $16 last year and falling all the way down to $11 these days -- commands a market cap that is just half as much as Spotify's reported $4 billion price tag.

Plenty of unlikely companies have been hopping on the "Pandora-esque" bandwagon.

Terrestrial heavyweight Clear Channel (OTC: CCMO.PK) decided to beef up its iHeartRadio application late last year. The popular smartphone app that allows listeners to stream hundreds of Clear Channel's AM and FM radio stations live also began offering a music discovery feature.

Sirius XM Radio (NAS: SIRI) is also making music discovery a major component of its Sirius XM 2.0 platform upgrade. Beyond adding new channels that only the second generation of receivers can broadcast, Sirius XM is improving its fledgling streaming service with customized radio.

However, the real dagger with Spotify -- which reportedly has 3 million paying stateside customers and 10 million active users -- is that it is making its Pandora-like service free. Until now Spotify was requiring mobile users to pay $10 a month for access to the on-demand music and play list service. Now it's going to become a more appealing app for penny-pinching music buffs.

We'll see how this all shakes out. Clear Channel, Spotify, Pandora, and Sirius XM have all grown in popularity over the past year, but that kind of growth won't be sustainable as competitors multiply and intensify their offerings.

It may be music to the market's ears for now, but a few more bandwagon hoppers and this orchestra will turn into a cacophony.

Running of the bulls
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At the time thisarticle was published Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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