Pandora Founder Expects ‘Modest’ Dent From ITunes Radio

Pandora Media Inc. (P) will see a “modest” impact from Apple Inc. (AAPL)’s new iTunes Radio, according to Tim Westergren, who founded the leading Web music service.

Half of Pandora users listen on devices other than those from Apple, which makes the iPhone and iPad, Westergren told investors today at a conference sponsored by Goldman Sachs Group Inc. in New York.

“We believe iTunes Radio will have a modest impact,” Westergren said, without providing specifics.

Pandora fell 10 percent yesterday after Apple said more than 11 million listeners tuned in to iTunes Radio since it was released on Sept. 18. Pandora, based in Oakland, California, has 72 million active listeners. The company has been tested by larger competitors, Westergren said, citing iHeartRadio from broadcaster Clear Channel Communications Inc. (CCMO)

“They launched with a huge marketing budget and no commercials, and Pandora’s market share only continued to grow,” Westergren said.

Apple has built a superior Web radio service for iPhones and iPads, CNET said in a review last week. The Cupertino, California-based company has access to more music than Pandora, with fewer commercial breaks and more relevant stations built around artists, genres and events, the media website said.

“ITunes Radio may be late to the party, but it’s still better than Pandora when it comes to streaming programmed radio,” on Apple’s iOS mobile operating system, wrote Jaymar Cabebe, a reviewer for CNET.

Pandora shares rose 0.9 percent to $24.47 at the close in New York. The stock has more than doubled this year. Apple fell 0.3 percent to $489.10.

Content Costs

Westergren said Pandora stands to benefit from recent Web radio agreements, including Apple’s iTunes Radio deal, with the record industry that have secured slightly lower content rates than what it pays.

Judges overseeing arbitration proceedings with the U.S. Web radio industry will establish royalties beyond 2015 partially by drawing on these new pacts, he said.

“Right now all the benchmarks being set in direct deals are narrowing the possible outcome in the statutory realm,” Westergren said, also referring to a pact this month between Len Blavatnik’s Warner Music Group and Clear Channel.

Pandora paid $164.7 million for music and other content during the six months ended July 31, which accounted for 58 percent of revenue. A year earlier, music costs totaled 64 percent of sales.

To contact the reporter on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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