Competitors Try To Chip Away At Pandora's Audience

On Monday, Apple announced iRadio — its entry into the crowded field of music streaming services. iTunes has become the top music retailer by selling song files. But no one in the music business thinks the iTunes model is the future. Pandora is the oldest and most successful streaming service so far. But it's been a disappointment to investors.

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Apple announced yesterday that it will launch a streaming music service. Now, Apple was among the first to sell singles for download through its iTunes, but Apple is entering a very crowded market for Internet radio - one with a clear leader, Pandora. Pandora draws 70 million listeners every month. In today's business bottom line, NPR's Laura Sydell looks at whether Pandora can stand a growing onslaught of competitors that now includes Apple, Microsoft, Clear Channel and others.

LAURA SYDELL, BYLINE: There was a lot of fanfare in the press leading up to the release of what Apple is calling iTunes Radio. But, Apple's Eddie Cue sounded a familiar theme at Apple's World Wide Developers Conference in San Francisco.

(SOUNDBITE OF CONFERENCE PRESENTATION)

EDDIE CUE: And once you have a station you love, you can just tap the I and you can share it with a friend or you can create a new station based on this artist or song.

SYDELL: Sounds a lot like Pandora, which has been allowing users to create personalized stations for eight years. Jacqueline Schneider, a marketing professional who lives in L.A., has her own favorites.

JACQUELINE SCHNEIDER: I always go back to Tribe Called Quest, always. Just because I'm a hip-hop head at heart.

(SOUNDBITE OF SONG, "BONITA APPLEBUM")

A TRIBE CALLED QUEST: (Singing) Bonita Applebum, you gotta put me on. Bonita Applebum, I said you gotta put me on. Bonita Applebum, gotta put me on. Bonita Applebum, I said you gotta put me on. Bonita Applebum...

SYDELL: Pandora tries to find other songs that sound like the music of Tribe Called Quest and Schneider gives the songs a thumbs-up or a thumbs-down so Pandora can refine the music mix.

SCHNEIDER: Jeeze, they know like what drum patterns I don't like, 'cause I'll just thumbs it down right away. I'm like not feeling that one.

(LAUGHTER)

SYDELL: After six years of using Pandora, Schneider feels it knows her taste. And that's exactly what the service tries to do, says Eric Bieschke, the company's chief scientist. Yes, they have one.

ERIC BIESCHKE: Pandora is trying to be the perfect personal DJ. So, like, your best friend who knows your music preferences perfectly. That's what the Pandora brain is trying to do.

SYDELL: Pandora's brain has been at it a while. Five years before it launched, its founders developed something called the Music Genome Project. The genome breaks down songs by characteristics. In Pandora's Oakland, California offices, musicians like Chris Hogan sit in front of computers listening to and categorizing new songs every day.

CHRIS HOGAN: So here, we're doing a track, "Gun Fever," by a local Oakland group called Hieroglyphics.

(SOUNDBITE OF SONG "GUN FEVER")

HIEROGLYPHICS: (Singing) Shot second in the ghetto, we try to keep it mellow but you got to keep the metal in a safe tucked place...

SYDELL: Hogan, who's also a hip-hop head, ranks the song on, say, how much vocals there are on a scale of 1-to-7.

HOGAN: That seven there says that the whole track is basically dominated by vocalists.

SYDELL: The Genome Project has hundreds of ways of categorizing and ranking songs: is the voice light or breathy or gritty and gravelly? Is the song repetitious or is the melody more complex? Musicians like Hogan make these judgments and then a computer algorithm sorts them out and makes matches between types of songs that go together.

Pandora was the first to do streaming based on calculations. But it now has a lot of competition: Spotify, Rdio, iHeart Radio, Google, Apple, and Slacker Radio, whose Senior Vice President Jack Isquith says his company brings a human curator into the mix.

JACK ISQUITH: Who is also looking at music not just based on the data, and not just based on things sort of sounding alike, but instead with a cultural bias.

SYDELL: Isquith says take a song like, "Moves Like Jagger" by Maroon 5.

(SOUNDBITE OF SONG, "MOVES LIKE JAGGER")

MAROON 5: (Singing) I've got the moves like Jagger. I've got the moves like Jagger. I've got the move...

SYDELL: On Pandora, you'd get a steady stream of dance music. But Isquith says Slacker will make a different connection.

ISQUITH: 'Cause there's a human element saying: Look, if someone is listening to "Moves Like Jagger," let's play a Rolling Stones song sung by Mick Jagger.

SYDELL: Slacker has 24 million users compared to Pandora's 200 million. And since algorithms get better when more people use them, Pandora has an advantage says Forrester Research analyst James McQuivey.

JAMES MCQUIVEY: Pandora's algorithms give them a better knack for anticipating what it is about a song that you're listening to, that just others have had a harder time recreating.

SYDELL: McQuivey says Pandora has what in business people call a first-mover advantage; people are used to it and they've got to have a good reason to change.

Ron Evans has tried other streaming services, but the Silicon Valley executive keeps coming back to Pandora. He's created 100 personal stations.

RON EVANS: For me, there's some emotional connections too, that go along when I added that station, and what I was feeling when I added that. And so, personalization is, you know, incredibly important to all of us. It's really important to me. This is my set of channels and there's something in me in them.

SYDELL: Evan says for now he hasn't found another streaming music service that makes him feel quite the same way. And that's the challenge that Apple and all of Pandora's competitors have to face.

Laura Sydell, NPR News, San Francisco.

(SOUNDBITE OF MUSIC)

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