Apple Doesn't Have to Worry About Pandora, Yet

Image source: Pandora Media.

After months of rumors and lengthy negotiations, it finally happened for Pandora Media (NYSE: P). We're not talking about a buyout, though the chatter and negotiations on that front have also reportedly been extensive.

Pandora finally unveiled Pandora Premium, the audio streaming pioneer's long overdue arrival in the realm of on-demand music. It may have been merely a coincidence that Apple (NASDAQ: AAPL) was announcing that it had surpassed 20 million premium subscribers for its Apple Music just as Pandora was trying to court industry attention. Either way, Pandora's making an obvious move and Apple's hitting a nice round milestone will forever be connected on a timeline.

Some will argue that Pandora is too late, but folks said the same thing about Apple when Apple Music launched two summers ago. It's quickly ramped up its user base to half of the 40 million premium accounts that on-demand leader Spotify was servicing as of September.

Pandora bears will also suggest that Apple and Spotify have little to worry about here because Pandora's a magnet for freeloaders. Pandora has struggled to get folks to pay for enhanced features of its music discovery platform. Less than 5% of its nearly 78 million active listeners are paying customers. Pandora Premium will be an uphill battle, but it's still a worthwhile fight.

Singing a new song

Apple can't dismiss Pandora as a challenger to Apple Music, even if Pandora Premium is a flop. If the new premium platform is a disaster, it could force Pandora into living up to the buyout hype, running into the open arms of an Apple rival that will become that much stronger.

Naturally, the bigger threat will materialize if Pandora Premium is a hit. It may not seem to have much of a shot on the surface. Apple and Spotify have corralled 60 million early adopters of premium streaming audio. Pandora's coming in at the same $10 price point as the big boys, so it's not as if it will have a major advantage there.

Pandora Premium won't even roll out until early next year. It will have been beaten to market by last week's debut of iHeartRadio All Access.

However, the neat wrinkle with Pandora Premium is that will use years of data mining -- it's amassed billions of thumbs up and thumbs down -- to make on-demand more personal. Folks can create playlists and single out tracks elsewhere, but Pandora Premium will pepper in elements of the music discovery platform that put it on the map.

Pandora Premium will have a captive audience to market to, as 77.9 million active listeners spend an average of 23 hours a month on Pandora's flagship offering. It has rolled out ad-scraping premium services in the past that haven't gained traction, but now it has a way to incorporate what it does so well with the way everyone is consuming music. Apple and Spotify may not be nervous now, but they'd better not underestimate the threat.

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Rick Munarriz owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Pandora Media. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. 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.