iTunes Radio May Already Be Crushing Pandora

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Josh Edelson / AFP / Getty Images

Now might be a good time for Pandora to start worrying. The leader in Internet radio put on a confident face in the long, tortured run up to the launch of Apple’s iTunes Radio, a direct competitor with similar features. Newly released data shows that Apple’s offering is quickly becoming a serious challenger.

On Monday Apple announced that iTunes Radio attracted 11 million unique listeners after just five days on the market. The service comes pre-installed on iOS 7, the new iPhone and iPad operating system that has been downloaded more than 200 million times. (Apple says it is the most quickly adopted software upgrade the company has ever put out.) The radio service is also available in the latest version of the iTunes desktop client. Users can listen to entire songs for free, creating stations that are automatically generated based on song, artist, or genres.

To put Apple’s figure in perspective, consider this: Pandora says that it had 72.1 million active listeners in August. If iTunes Radio keeps up its pace of growth, which is by no means guaranteed, the service would end up with more than 66 million unique listeners in its first month, almost on par with Pandora. (Pandora offers a free version as well as paid subscriptions.) Even the mere hint of iTunes Radio’s success sent Pandora stock tumbling Monday, down 10% to $24.26. Analysts at the investment firm Stifel predict that Pandora could lose 10% to 15% of its monthly listener-hours as iTunes Radio ramps up. (A Pandora spokesperson declined to comment.)

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Even if Apple’s service grows only modestly, Pandora may have cause for concern. iTunes Radio has gotten fairly positive reviews, though not everyone loves it. One of its chief advantages may be that it will come pre-installed for new iPhone users. And advertisers are lining up to support the service. McDonald’s, Nissan and Pepsi have signed on for 12-month long advertising campaigns, some of which cost tens of millions of dollars, according to Ad Age. Apple’s clout with music publishers could also help it negotiate better deals in the long term.

And yet, Pandora has a huge installed user base; it is the second-most downloaded iPhone app ever. And Apple’s track record in the mobile advertising business is mixed at best. What’s more, the iTunes business at large, which Asymco analyst Horace Dediu estimates is worth about $17 billion, has always been about generating sales of higher margin devices.

How is all this sitting with Pandora? At an August conference Pandora’s CFO said the introduction of iTunes Radio could actually benefit his company by introducing traditional radio listeners to the idea of Internet radio. The company will release September listener metrics in early October, which should provide a clearer picture of whether iTunes Radio is expanding the music streaming pie or eating into it. But already, at least one obvious prediction has come true: Apple will be a significant player in the music streaming space.