Watch Out Pandora, Here Comes Apple

Shares of the Internet Radio provider Pandora (NYSE:P) fell more than 14 percent on Thursday afternoon after Bloomberg reported that Apple (NASDAQ:AAPL) plans to launch an Internet radio service of its own in 2013.

The sharp drop in Pandora shares was so substantial that it triggered two circuit breaker halts within a span of ten minutes before returning to normal trading.

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Sources told Bloomberg that negotiations between Apple and major music labels have intensified as the company prepares to begin its own service during the first three months of 2013. According to the report, executives from Vivendi’s (VIVEF.PK) Universal Music Group and Sony’s (NYSE:SNE) music division visited Apple’s headquarters in Cupertino, California in recent weeks.

The Wall Street Journal made a similar report in September.

To make its service competitive with Pandora, Apple is attempting to arrange licensing pacts with labels that give listeners more freedom to chose what they listen too; Pandora’s compulsory license limits how often users can skip tracks and how many times an hour an artist can be played. However, Apple’s service is expected to be compatible only with the company’s hardware, a development that could mitigate Pandora’s losses.

Sales of music downloads have slowed in recent years, and Apple has begun to search for a new means to profit from digital music. Online digital music sales saw growth between 12 and 200 percent from 2005 through 2010, after which sales slowed. In 2011, sales increased by only 8 percent.

While Bloomberg’s sources said that Apple sees the service as a means to grow its iAd mobile advertising platform, this is of little consolation to Pandora. Shares in the company dropped from $9.50 to $7.40 after the report was published, and at market’s close, the stock was trading at $8.20 per share.

Shares in Sirius XM (NASDAQ:SIRI) also fell. However its stock price was much less affected than Pandora’s, dropping only 7 cents before recovering.

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