Between Google Inc.’s (NASDAQ: GOOGL) free streaming service and Taylor Swift’s brutal attack on Apple Inc.’s (NASDAQ: AAPL) plans to offer free trial subscriptions, something has been lost. There are too many music services, be they downloads, streaming, ad-supported or paid subscription supported. Not every one of these can survive, or at least not all can prosper.
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Pandora Media Inc. (NYSE: P) has more than 80 million active users. Spotify has a bit short of 60 million. Each needs to get a huge amount of paid advertising, or to rush to covert free users to paid ones. With so much free music on the Internet, that is a long shot. Pandora’s shares demonstrate that companies without huge revenue and iron-clad balance sheets have fallen out of investor favor. The price of its shares has been halved over the past 52 weeks. Its market cap is down to $3.5 billion. It lost $48 million last quarter and has a cash balance of $500 million, which seems like a lot. However, it is pennies compared with the financial firepower of some of the largest tech companies in the world.
The online music business has become something akin to the smartphone business five years ago. Apple had the core of the market. Samsung gained some of that and briefly took the lead from Apple. Then Apple took it back with the iPhone 6. Some companies, particularly HTC, were hot for a year or two. Then it was relegated to the scrap heap, along with Sony Corp. (NYSE: SNE), Nokia, Motorola and LG. The global smartphone market place is a race between two companies. Each is so large and well armored that this fact will not change.
Streaming media is not the same as smarter phones. However, the market is only elastic until it is not, in both cases. Even if everyone wants streaming music, and not everyone does, market share is essential. With Google in the race, most other companies in the field will give up some of theirs.
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