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Spotify Hopes to Crush Pandora With Similar Features

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Internet radio station Pandora (P) is streaming the blues this week as main rival and competitor Spotify launches a new iOS (AAPL) app featuring free streaming radio, Bloomberg BusinessWeek reports.  

The London-based company will feature many of the same services Pandora offers, such as the ability to create a radio “station” based on artists and genre. The content to non-subscribers will be free, subsidized by sponsors like Chevrolet (GM), Heineken and Taco Bell (YUM) which will be able to fill the 2-3 minutes of commercial time reserved each hour. Users paying for the $9.99 monthly plan will enjoy their tunes commercial free. Subscribers can also skip unlimited tracks, as opposed to a limit of six skips-per-hour for the free service.

Currently available in the iTunes stores, this move to the Pandora-eqsue radio-like service is a smart move by Spotify. In the United States, operating in this function is cheaper due to the lower royalty rates set by Congress.

“We’re taking advantage of statutory rates in the U.S.,” Spotify vice president of product Charlie Hellman said. “We’re collaborating with our label partners on how to bring this great experience to all users globally in the coming months. That’s the goal.”

It’s also trying to take advantage of the very lucrative online music pie. Due to contents deals with Sony (SNE), Vivendi, Universal, EMI, and Warner Music Group, Spotify has an international advantage. Pandora, with no such deals in place, can’t expand beyond the US without legislation in other countries.

But stateside Pandora is doing pretty well. Their 150 million registered users currently trumps Spotify’s paltry 10 million, although about one-third of them have signed up for the paid plans. And, while it’s too soon to measure how the new app affects either user base, Pandora’s stock has already taken a hit. After Spotify’s announcement, Pandora’s stock dropped 6.7%, although it has recovered some in the meantime. 
POSITION:  No positions in stocks mentioned.