Internet radio services firm Pandora Media Inc(NYSE:P ) received a battering on Friday with its stock diving more than 16 percent on news that Apple Inc.(NASDAQ:AAPL) was in talks to introduce an internet radio service similar to it.
Pandora's shares fell 16.71 percent to $10.47, though in after-hours trading it rose slightly. On the same day Apple hit a fresh all-time high rising 0.6 percent to $682.48.
While Pandora has become a benchmark in the industry for its advertising-supported Internet radio it is facing a mismatch in ad revenues and royalty payments made each time an additional user downloads a song.
Advertising revenues are not keeping pace with its rapid subscriber growth and it has been struggling to improve its profitability margins.
The Wall Street Journal which reported the story said that last week Pandora's listener hours rose 80 percent in its fiscal second quarter to 3.3 billion while average ad rates fell 27 percent in the same period.
"Meanwhile, content-acquisition costs, or the royalty fees Pandora pays to stream music, jumped to $106.6 million from $65.5 million," it said.
Apple, meanwhile, has a long history of negotiating rights to distribute music online as part of iTunes service. The Cupertino, Calif., company is in talks to develop an online-radio service that could be used on its popular iPhones and iPads, The Wall Street Journal reported.
Well the only consolation for Pandora is that Internet radio services is not a core offering for Apple and something that it would offer as an add-on content for buyers of its devices.