Pandora Media Inc. and Sirius XM's Gigantic Problem Just Got Worse

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Apple is quickly growing into a juggernaut within the music industry with iTunes Radio, and even more so following the acquisition of Beats Music. Both Pandora Media  and Sirius XM's stock have been under pressure this year. The recent Apple announcement, combined with the new Amazon.com music streaming service, just made Sirius and Pandora's gigantic problem even worse.

2 market leaders, at least for now
Pandora's active listeners grew 8% year over year in its last quarter to 75.3 million  . For Sirius XM, its total subscribers reached 25.8 million, as the company estimates that 26% of all cars on the road have its equipment installed. 

Nonetheless, Pandora and Sirius XM's recent growth has almost been by default. Pandora is a decade old company, but flourished thanks to the rise of smartphones and apps. Meanwhile, Sirius XM's radios come pre-installed in most new cars sold in the U.S.


The already known bad news
With that said, Apple has emerged as serious competition to both Sirius and Pandora. Apple's iTunes Radio launched last year and already has 40 million listeners. 

In regards to Sirius XM, Apple is launching its new CarPlay service, which essentially brings its operating system to your vehicle. This includes maps, phone, and of course a radio. Clearly, this competes directly with Sirius XM and its preinstalled business model, as many manufacturers will elect to use a newer Apple produce to boost the desire for their cars. Currently, CarPlay can be found in Ferrari, Volvo, Mercedes, and Hyundai, but in the coming months it will be installed in Chevrolet, Ford, Nissan, and Kia, which will hurt Sirius XM.

The bad news gets worse
While Pandora and Sirius XM investors are already fearful of Apple entering the music space, there's even more bad news. Specifically, Sirius XM investors have continued to boast that its advantage is talk radio, original content, and sports.

However, Apple's iTunes Radio now has popular shows, 42 new radio stations from NPR, and original content deals with the likes of ESPN. Specifically, this content eliminates the only advantage Sirius XM had to offer consumers, and it shows that Apple is interested in taking the radio market by storm. Therefore, don't be surprised to see content deals with the likes of CNN and the NBA, and when that happens, it could be game over for Sirius.

As for Pandora, competing against Apple is tough, but now the company will have to face a new streaming music service from Amazon, which is reportedly near launch. Amazon's service will be a bit different. It may lack advertisements, and will probably be free. 

In typical Amazon fashion, the company will give away music to its 20 million Prime subscribers for songs that are at least six months old. Given Amazon's free shipping, video, and other benefits of Prime, music looks like another piece of the pie to make Prime worth the $99 per year. 

Final thoughts
The problem for Pandora and Sirius XM lies in market share and a lack of diversification. Obviously, when controlling such a large piece of the radio listening market, it's hard to improve, but with new competition, it's easy to lose share.

Also, if Amazon.com or Apple don't make further in-roads in the radio business, not many investors will lose sleep since both companies rely upon other sources of revenue. But, for Sirius XM and Pandora, music is their business, which makes both companies risky investments in the long-term.

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The article Pandora Media Inc. and Sirius XM's Gigantic Problem Just Got Worse originally appeared on Fool.com.

Brian Nichols owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, and Pandora Media. The Motley Fool owns shares of Amazon.com, Apple, Pandora Media, and Sirius XM Radio. 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 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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