Shares of Internet radio company Pandora Media Inc. fell Monday on worries about increasing competition after Microsoft announced that it would roll out a new music service.
THE SPARK: Microsoft Corp.'s new Xbox Music is a free music streaming service as well as a subscription music plan similar to Spotify and Rhapsody. It will also sell songs and albums a la carte like Apple Inc.'s iTunes.
The service begins rolling out to some 66 million Xbox users worldwide starting Tuesday. It will cost $10 a month on the Xbox and on phones.
A free version of the service accompanied by some ads will be available on PCs and tablets running the new Windows 8 operating system, which debuts Oct. 26. Included in the service is a "Smart DJ" that, like Pandora, plays randomized songs along different genres or similar artists.
THE BIG PICTURE: Pandora is the nation's largest free online radio streaming service. Its business model is based on paying royalty fees to artists and their record labels, then generating revenue from advertising. It also makes a relatively small amount of money from subscribers who pay $36 a year to listen to streams without ads. Since its initial public offering of stock in June 2011, it has not posted a quarterly profit.
THE ANALYSIS: Wedbush analyst Michael Pachter said another competitor in the realm of free online music streaming could hurt Pandora. Shares of the company were also hit when rumors of Apple Inc.'s upcoming radio service were reported.
"Pandora always gets hit when others compete," Pachter said.
Microsoft is the latest entrant into a radio streaming service, following Clear Channel, which offers a similar service to Pandora with its iHeart Radio app, and Spotify, which offers free music streaming from a PC. Within subscription music services, all offer the ability to play randomized songs along certain genres without requiring the user to do anything. Many have much larger repertoires than Pandora.
SHARE ACTION: Pandora shares fell 30 cents, or 3.2 percent, to $9.10 in midday trading Monday. That's down from its IPO price of $16. In the last 52 weeks, shares of the Oakland, Calif., company have traded in a range between $7.83 and $15.97.