Is Apple Dialing Up Pressure on Pandora?

Pandora (NYSE:P) has not been feeling good vibrations over the past few months. Rumors and speculation of Apple (NASDAQ:AAPL) entering the Internet radio business have weighed heavily on the company’s stock price. Although Apple already has a large online music presence through iTunes, a new survey shows why the world’s largest company may be preparing to dial up the competition on Pandora.

Apple ignited digital music more than a decade ago with the original iPod, but the industry continues to evolve and grow. According to The NPD Group, a leading market research company, 96 million Internet users listened to music on an Internet radio or on-demand music service in the past three months. More than one-third of U.S. Internet users tuned in to Pandora and other services, while another third used an on-demand music provider such as YouTube (NASDAQ:GOOG), VEVO, Spotify or Rhapsody.

The growth rates among these services are very attractive. Users for Internet radio jumped 27 percent year-over-year, while the on-demand crowd grew 18 percent. However, other formats are seeing declines. The number of consumers who reported listening to CDs dropped 16 percent. The audience tuning into AM/FM radio declined 4 percent, while the number of consumers listening to digital downloads edged 2 percent lower.

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“Although AM/FM radio remains America’s favorite music-listening choice, the basket of Internet radio and streaming services that are available today have, on the whole, replaced CDs for second place,” explained Russ Crupnick, senior vice president of industry analysis at NPD, in a press statement. “We expect this pattern to continue, as consumers become more comfortable with ownership defined as a playlist, rather than as a physical CD or digital file.”

NPD also found that since 2009, the number of Pandora users who also listened to AM/FM radio declined by 10 percent, and those listening to digital music files on portable music players plunged 21 percent. NPD notes that a part of these drop-offs can be attributed to the fact that 34 percent of Pandora users now listen to music in their cars, either with an in-car appliance or a personal device such as a smartphone. Models from major automakers such as Ford (NYSE:F) and General Motors (NYSE:GM) now offer Pandora services.

On Tuesday, shares of Pandora lost 1.66 percent in morning trading and remain 22.98 percent in the red year-to-date.

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