The Company Most Likely to Collapse in 2014

NEW YORK (TheStreet) -- Let's keep moving the conversation forward pursuant to Monday's article about one direction Tim Cook could take iTunes Radio at Apple (AAPL).

For my money, Apple should not do anything other than focus on hardware. I only entertain expanded forays into software and services because it appears Apple will go there. To some extent it already has. Plus there comes a point where the Apple should only focus on hardware take falls apart. You can't keep half assing efforts such as Apple Maps and iTunes Radio without it coming back to bite you. You'll wind up looking like Google (GOOG) ... or worse.

So, while it's one thing to assemble features that comprise an ecosystem designed to sell hardware, it's entirely another to produce substandard components. For example, why bother doing iTunes Radio if it's not going to be the best and you're not going to maximize its potential when you could just rely on third parties or buy the leader among them -- Pandora? In other words, if you're not going to do it the right way on your own, don't do it. Have somebody else do it for you.

Plus, sooner or later somebody's going to come for Pandora. So why not Apple?

Take it from the guy who was bullish Pandora stock at eight bucks a share and then bearish at $36 -- Pandora's at its most vulnerable right now. And it's well within the realm of possibility that the company collapses under its own stubborn and shortsighted weight in 2014 or thereabouts.

Sounds crazy now I know. Wall Street analysts love Pandora. The media's on board. And Pandora tells us its running on all cylinders. Fantastic. Sounds great today, but today doesn't matter. You've got to be able to think about what's going to go down 6-12 months from now. Anybody can recite what's happening today. But tomorrow matters. And I'm telling you, on it's present course, tomorrow will not be pretty for Pandora.

Follow me here -- Pandora redefined traditional radio by adding personalization, discovery and targeted advertising. It made those three things its hyper focus. As this dynamic was forming and eventually took hold, traditional radio pretty much stood still. Deer in headlights type stuff. But, now, traditional radio's doing what it can to evolve. It's moving beyond its comfort zone of simply selling commercials. And, with the most amazing irony, Pandora's hyper focus, particularly on selling ads, has it effectively standing still. And it's acting a lot like traditional radio acted when Pandora was busy disrupting it. That's not good. Here's some support for my contention ...

Pandora's testing what it calls "promoted stations" to about 10% of its active audience. AdAge has details:

Taco Bell, Diageo's Crown Royal, Skechers and Sonos are among the ten brands participating in the beta ...
The Promoted Stations ads will appear atop the "Stations You Might Like" section of Pandora's listeners' station lists. The section is similar to Twitter's (TWTR) "Who to Follow" box.

So very weak.

Pandora's diving head first into dangerous territory. It's increasing its spot load and finding new ways to put advertising in front of its users. You know -- it's doing one of the very same things that's a big negative for traditional radio. On its own that might not be a bad thing, but consider some color. 

Pandora might argue that it has no choice but to saturate the masses with advertising. It has to increase revenue. And it must find a way to keep ahead of content costs. That's what Pandora always comes back to. It's the poor victim -- as its executives get filthy rich -- of royalties so it has no choice but to do things to offset this injustice. And, in Pandora's narrow-minded vision of what it is and what it thinks it should be, it can only fight back with more and/or different types of advertising.

Also so very weak.

If Pandora was a nimble company with a handle on the trajectory of Internet radio and the music industry it would expand its horizons to grow revenue beyond advertising. It would not compromise and sacrifice the user experience with more advertising; instead it would -- as I have been banging on for months -- build a data business.

So why doesn't it?

I have a theory. If Pandora went ahead with what I think it should go ahead with -- providing historical and real-time access to its data to record labels, marketers and brands -- it fears the labels, in particular, would use that data to inform radio airplay and such. Pandora views this as competitive, therefore it refuses to release the data, even for a price. Again -- shortsighted and dumb.

When you have a company acting the way Pandora is acting, others with vision will take note. At some point, a major player such as Apple or Google will seize the opportunity and wipe Pandora out. Don't forget Spotify, which made the incredibly smart move of buying The Echo Nest earlier this year. Even Rdio has stepped up its game, getting more creative in its partnership with radio broadcaster Cumulus Media (CMLS).

The other guys are not standing still whereas, outside of its advertising efforts, Pandora absolutely is. This state of affairs might not have mattered six months, one year or two years ago. But it does now. Pandora's arrogance will catch up with it.

The company, led by co-founder Tim Westergren (I am told he is still involved with the firm), has an almost messianic view of its place in Internet radio. It believes the only way to do Internet radio is with an ad-supported model wholly focused on doing traditional radio better. That's it. Pandora believes that when things shake out the world will stop and say, Gee, these guys were right all along. That's stubborn arrogance. It's also a static view, which is the last thing you want to have at the dynamic intersection of always-evolving and emerging spaces -- media, tech, Internet radio.

This thing's gonna blow. Pandora will ultimately have beat itself. But somebody else -- be it Apple, Google, a traditional broadcaster or a small Web player -- will shoot the final nail. It's going to happen. Pandora can alter its fate by either adjusting its limiting attitude or seeking a buyer who will not only realize, but implement and execute the incredible potential Pandora holds.

--Written by Rocco Pendola in Santa Monica, Calif.

Rocco Pendola is a full-time columnist for TheStreet. He lives in Santa Monica. Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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