Crucial Facts You Should Know About Apple vs. Pandora

NEW YORK ( TheStreet) -- Even if you've never heard of Bridgit Mendler, you need to read this article.

Because I'll introduce and reiterate points investors as well as smart generalists (that's a new term I stole from a friend) need to know about Pandora ( P) and Internet radio/the music industry as it relates to the aforementioned's perceived battle with Apple ( AAPL).

As for Mendler, she's 20 years old. Sweet. Attractive. The star of Disney's ( DIS) Good Luck Charlie and just a little creeped out that I asked to take a picture with her backstage at a recent "Pandora Presents" concert in Southern California.

Mendler performed songs from her debut album, did a couple covers and mentioned she has a new record coming out soon.

A "Pandora Presents" concert is about as big a break a performer at Mendler's level is going to get, short of Taylor Swift calling her out as a special guest on the Red Tour like she did Cher Lloyd, Tegan and Sara and others this past August in Los Angeles.

In fact, the Bridgit Mendler story, as I illustrate it, marks the next -- and, quite possibly, most important chapter in Pandora's history. You don't have to know who Mendler is or care about what she does to understand why she's relevant to at least two multi-faceted and intertwined aspects of a Pandora bull case.

Nobody Wins Unless Everybody Wins

Here's how, in the shell of a nut, "Pandora Presents" works:

Pandora's sales staff works with advertisers. Various Pandora teams work with artists. Advertisers tell Pandora the demographics they hope to engage on the basis of age and location, which link inextricably with music preference. Pandora puts a package together that best suits the advertiser. Customized and targeted in a way terrestrial radio could not possibly match and Apple has no desire, inclination or need to match.

Increasingly these deals include a "Pandora Presents" concert event. I've been to two in about two months. One with a local indie band in LA, sponsored by Chevrolet and the above-mentioned one with Mendler (and rapper Jake Miller) backed by General Mills ( GIS).

At both the act and advertiser level, Pandora hits all ends of the spectrum; this past week Celine Dion did a "Pandora Presents" show in New York City:

The performance (was) brought to passionate fans that have added a Celine Dion station on Pandora, are located in the New York Tri-State Area and are age 21 and over. The special event will be free of charge and will take place on October 29 at the Edison Ballroom.

Pandora Head of Music Partnerships, Tommy Page, said, "Connecting artists with their fans is a central part of our mission at Pandora and with more than 70 million people listening to more than a billion hours of music every month, we offer unique capabilities through our immense pool of data and listener insights. We are thrilled to host this special evening with Celine Dion in anticipation of her Loved Me Back To Life album, where we will bring together a group of her biggest fans for an intimate first listen." Excerpt from a Pandora press release

Fans get an exclusive invite and a free show, which often includes free drinks, etc. Advertisers get the exact crowd they want: a captivated and engaged audience, thrilled to have been handpicked by Pandora (and, by extension, the advertisers) to see one of their favorite musicians. That's called goodwill and brand/relationship building.

The act wins, no matter how big or small they are.

Somebody at Celine Dion's level, a huge artist who could still use a boost ahead of a new record. Relatively small indie acts play shows to their biggest fans in packed venues where they don't have to worry about music industrial complex injustices such as pay-to-play. Thanks to Pandora's sales buy, the musicians probably make as much, if not more money for a "Pandora Presents" show as any other.

A performer, such as Mendler, with the power of the Disney platform behind her, comes in at a sort of in-between level. She could slip through the Kids-TV cracks, even with Disney's support, but Pandora helps her avoid this, thanks, in large part to ...

The Music Genome Project

From a popular culture standpoint, it makes sense that Mendler would show on Pandora users' Taylor Swift and One Direction stations. She does on my daughter's all of the time. However, Mendler keeps coming up on those stations for less obvious reasons, unless, of course, you possess an understanding of the Music Genome Project's analytical guts.

Ultimately, from a musicological standpoint, Mendler's songs fall in close proximity to songs by Swift, 1D and others that routinely appear on those stations and others like them. Pandora's music analysts rate the song's many sonic, lyrical and related attributes to determine what ends up where. Specific listener behavior -- thumbs up, thumbs down, skips, the stations users choose to create, etc. -- keeps somebody like Mendler on (or off of) an individual's personalized station(s).

That translates into exposure for Mendler that she's not going to get thanks to a half-cocked record label promotion or via a token royalty check. It's similar to the scenario I describe in the above-linked article with relation to Bronze Radio Return seeing success thanks to inclusion on Mumford & Sons Radio.

The crucial point investors (and smart generalists) must understand is that Pandora doesn't have to be as big as Apple. It never will be, nor should it strive to be. On the flip side, Apple doesn't need to, should not and likely will not spend time striving for dominance in areas where Pandora already has dominance or has achieved scale or continues to build out to scale.

There's likely a dedicated team of talented people working on iTunes Radio (though, their gatekeepers refuse to even respond to my requests to converse with them), but it's not Apple's bread and butter. It's a means to the ends of, primarily, selling more hardware and, to a lesser, but somewhat important, extent, ramping up a fledgling mobile advertising business.

That's not to say Pandora stock hasn't run a bit too far. After I watched it triple from the $7 range I was bullish in, I couldn't do anything but throw cold water on the rally. But all of this is to say, iTunes Radio will do well. It, along with, but not without Pandora, will be one of the survivors doing pure-play personalized radio. The services will remain distinct enough, not only in user experience, but in how the respective companies leverage them to make money.

-- Written by Rocco Pendola on an airplane somewhere over the Grand Canyon
Rocco Pendola is a columnist and TheStreet's Director of Social Media. Pendola makes frequent appearances on national television networks such as CNN and CNBC as well as TheStreet TV. Whenever possible, Pendola uses hockey, Springsteen or Southern California references in his work. He lives in Santa Monica.

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