September 23, 2011 at 11:26 AM EDT
Facebook Music: Too Loud for Pandora
The already crowded online music game shoves in another contender -- Facebook and its host of partners -- that threatens to squeeze Pandora out.

Facebook PandoraSince coming public in mid-June, the shares of Pandora (NYSE:P) have been a rocky ride for investors. After reaching a high of $26, they now are trading at about $10.50.

So what’s the problem? Actually, it’s not the service. For the most part, Pandora has a great offering (Disclosure: I love it as well).

But when it comes to investing, good service is not enough. It’s also important to look at the barriers to entry. Unfortunately, in the case of the online music industry, there are many worthy competitors trying to get a piece of the market.

The latest entrant came just this week: Facebook. The company is partnering with other music operators like Spotify, MOG, iHeartRadio, Slacker and Rdio.

Their services will be integrated on the Facebook platform and allow users to share playlists and music titles. They also will appear on a user’s Timeline (Facebook’s new profile page). This should provide an overall boost to the online music industry.

However, Facebook Music also will put pressure on Pandora. After all, Facebook is looking to be the ultimate platform for music (as well as other media, such as movies and television content). And it certainly will be a great way to get a chunk of some high-margin revenues.

Facebook’s music efforts also will put pressure on other top tech giants like Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL), who want to be the dominant player for entertainment platforms.

Thus, for a relatively small company, Pandora certainly has a lot of challenges to deal with. It is no surprise that its stock price can’t seem to find much support.

Tom Taulli is the author of “All About Short Selling” and “All About Commodities.” You can also find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.


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