NEW YORK (TheStreet) -- I'm not going to spoon feed you a simple 1-2 or A-B list like so many of the other guys. Sorry. But I believe in not insulting your intelligence. You can read. You deserve context and color in a world of If my friends and I can't understand it, it must not be good reactionary crap. Because that's pretty much all we got in the aftermath of last week's Apple (AAPL)/Beats news.
So, if you're in a hurry, I bold and bullet point the key portions of this article. Otherwise, read the entire thing (both pages) and I elaborate a bit on the two most important outcomes of this deal. Both involve Pandora (P). Both involve a seismic and overwhelmingly positive shift for the fate of the music industry. And, again, Apple situates itself at the forefront ... as the undisputed leader.
Here we go ...
The Apple/Beats hookup underscores the sad reality that Pandora has made all the wrong moves over the last several months. In fact, it should have been laying the groundwork for a more diverse and dynamic strategy long before 2014.
Scroll my recent article history for all the background you need on where Pandora dropped the ball. Then read Google or Yahoo! Buying Pandora Makes a Ton of Sense for a picture of not only how things should shake out, but how they absolutely must transpire if Pandora wants to remain a going concern beyond 2014-15.
I giggle, chuckle and then full blown laugh when I read that Apple/Beats shows the allure of or vindicates Pandora. That's high and wholly misguided humor. Because it's exactly what the people who sold off Pandora stock on the mention of faux Pandora killer should have been saying between 2011 and 2013. But that storyline's old, tired and pretty much dead now. It doesn't hold in 2014. And it doesn't justify the support Pandora shares enjoyed on the Apple/Beats rumor, news, deal .. whatever we called it last week.
Pandora did something amazing. It's an accomplishment that took shape long before the company went public and was facilitated/enabled by the introduction of Apple's iPhone. It put a different wrinkle on music radio. While Pandora did not, probably will not and probably shouldn't attempt to replace personality-driven radio, it did redefine the way we consume music via radio and the way advertisers buy time and space in association with it. In that sense, it redefined and disrupted radio. But, again, that's a pre-Pandora IPO phenomenon that going public aided, abetted and intensified. Pandora grew exponentially because going public gave it the resources to fast track the various pieces of human and technological infrastructure it needed to be able to grow exponentially.
While that's still a great story (see Pandora: The Definitive Look Back and Look Ahead for color and context), it's only part of the story. The fact that Pandora has not capitalized and almost refuses to capitalize on the second part of that story triggered my bearishness (the stock's down nearly 40% since I turned bearish). And, in light of the Apple/Beats news (even if a deal didn't go down!), you should be bearish Pandora -- barring a buyout -- too. Pandora needs to get bought out or it dies.
There was no reason for Apple and Beats to hook up unless the pair planned to unleash and maximize the mostly unrealized power of music in a digital world.
That means ...
- Nuts to the struts partnership with the music industry, particularly the record labels. The music industrial complex needs somebody to hold its hand in a world of dead CD sales, dying digital downloads and relatively low royalty rates (per play) on Web streaming. Right now, the labels are either afraid to partner with Internet radio companies or they're up against companies unwilling to genuinely partner with them because of legal battles and such around royalties. In Beats, Apple gets a number of men (Iovine, Reznor, Dre and Ian Rogers) the labels will deal with. The music industry knows these guys aren't going to burn them (or at least not as badly as Apple has in the past and Pandora hopes to now).
- Unconditional use of data to create new and nurture/maximize dynamic lines of revenue beyond royalties. Remember, Jimmy Iovine was talking about how valuable the data streaming radio collects is to record label executives before Beats Music (underwhelmingly) came to be. (You can link to his excellent talk on the subject here).
- Also remember -- and, even though I bury it, this might be the most important part of this article -- Beats purchased the company Ian Rogers (current Beats Music CEO) was CEO of -- Topspin Media. Read this short description of what Topspin does then tell me data isn't the central and most important part of streaming radio. It is absolutely the cornerstone. Beats is setting itself up as a leader there. Comparatively, Pandora's doing nothing in the space. And, now, given that an acquisition of Beats includes Topsin, Apple's in the space times two. And ...
That's absolutely devastating news for Pandora (even if Pandora denies it or, in its arrogance or ignorance -- take your pick -- doesn't know it).
Apple just transformed the music industry again. But this time it's going to be good for the music indsutry. And bad for Pandora. The only hope Pandora has is a buyout from Google (or maybe Yahoo!) where a streaming radio platform meets contextual search and other tools, such as video and on-demand streaming, Google (and, to some extent, Yahoo!) continue to build out.
So the two outcomes ...
One, the game has changed for Pandora. It needs a buyout or it becomes, for all intents and purposes a non-entity over the next couple of years.
Two, data takes the forefront in a music industry run by the Apple/Beats combo. And the music industry will be more than happy to let Apple/Beats take the lead there. Finally, they can feel confident they're not dealing with a bunch of how do they sleep at night, filthy rich executives trying to litigate and nickel and dime them on a tenth of a penny here, a tenth of penny there royalty payments.
That's small potatoes in a world Apple/Beats will accelerate us into ... one where dynamic, data-centric platforms drive music industry revenues, not the promise that never even was in the first place of royalties.
--Written by Rocco Pendola in Santa Monica, Calif.