Is Apple About to Destroy Pandora?

For records labels who’ve survived the shift from hard-copy album sales to Internet-sourced revenue, Pandora (NYSE:P) has been a bright spot in an otherwise darkening world. Label heads originally entered negotiations with Pandora and other streaming services to ease the grip of Apple (NASDAQ:AAPL) and its iTunes behemoth. Pandora can finally claim it has done its part, with profitability at all-time highs in the streaming industry. So why are labels reportedly seeking a deal with Apple?

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The entry of Apple into the Internet-radio game would be momentous. In fact, the mere suggestion can make investors with Pandora panic. The power of Apple’s reach is reinforced by the record labels’ hard-line stance with Pandora. In a twist that could spell danger for the company, record companies are refusing to lower fees for Pandora by any significant margin. (Though they don’t negotiate directly, the Record Label Industry Association of America is lobbying Congress to keep its royalty rate intact.)

Meanwhile, observers see an “iRadio” model on the horizon. The RIAA has proven willing to work with Spotify, a chief competitor of Pandora, yet there is no sign they’re willing to give Pandora a break. On the one hand, the RIAA appreciates the impact Pandora has made. On the other, it’s considering the possibility it can do better (or at least not worse) by trying out the competition.

For Pandora, that means real vulnerability. The top levels may give Apple a deal that nets them about half what Pandora pays per song, yet they might see the partnership with Apple to be more profitable in the long term. That would take them back to the earliest days of streaming services, when record execs feared the potential of an Apple monopoly.

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Would squeezing Pandora give Apple full control of the Internet radio game? With the lowest price-per-song model in its corner, Apple would be more than capable of destroying Pandora. However, talk of this iRadio formula is not new. Is Apple ready to deliver the knockout blow? Some insiders predict it will be ready for this summer. If that happened, Pandora has very hard times ahead.

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