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Here's Why Pandora Shares Rose on Apple's iTunes Radio

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With Pandora and fears of rivalry from Apple's streaming radio service, it was a case of sell the rumor and buy the news. Past reports of Apple's pending service sent Pandora shares tumbling on various occasions.

But today, when Apple announced its iTunes Radio — Pandora shares closed 2.5 percent higher and continued to move up after-hours.

ITunes Radio is more similar to Internet-radio service Pandora, than on-demand Spotify. Here's how it works: users can pick an artist they like, and then iTunes will program a "station" with similar artists. Users can program their own stations or pick from ones Apple has already created. The radio stations are free, supported by ads, and for iTunes Match subscribers, they are ad-free.

As expected, it directs users to buy songs from iTunes—when a song is playing there's a button at the top encouraging users to buy a song, along with the price for the download. With Sony Music, Universal Music, and Warner Music on board, the service has access to iTunes library of over 26 million tracks.

(Read More: Apple Announces iTunes Radio, Major OS Upgrades)

Why didn't Pandora shares take a hit on news of this new competitor? According to Pandora CEO Joe Kennedy, it's not revolutionary enough.

Pandora sent CNBC this statement: "Apple's new feature is an evolution of their iTunes offering to bring it on par with other streaming music services that have added radio into their feature sets. We have spent the last 13 years singularly focused on redefining radio and benefit from unrivaled intellectual property, deep experience in delivering personalized playlists, and ubiquitous product availability across every platform. We make it effortless for our more than 200 million registered users to connect with the music they love anytime, anywhere."

Nokia, which has another rival service, echoed Pandora's sentiment, calling Apple an also-ran:

"We launched our streaming radio service in 2011. It's interesting to see Apple react now and it seems they continue to play catch up. Nokia Music will stay true to our mobile-first approach and continue to deliver an extremely simple, personalized and contextual way to discover and enjoy music on the go. Our fully automated personalization and the ability to save your favorite playlists for offline use combined with no requirement for registration, no payment and no ads continues to resonate with listeners around the world."

Apple's iTunes Radio, launching this fall, validates the efforts not just of Pandora, but also of Google and Microsoft, which have been investing in the music space. And based on Pandora's reaction today, despite Apple's size, it may not be a game-changer for the industry.

—By CNBC's Julia Boorstin. Follow her on Twitter: @JBoorstin

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  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.