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Spotify Launch Slams Pandora Stock

Pandora shares were off more than 6 percent earlier today, now down over 3 percent on news of a new rival from Spotify.

The streaming music service is launching a new web radio service for mobile devices, which takes direct aim at Pandora’s business model.

This service is free—until now only Spotify’s web service was free, while mobile access required a $10 monthly subscription.

And until now Spotify focused more on letting people curate playlists, rather than listen more passively to ‘radio’ style channels. Now users can save individual tracks to playlists, plus unlimited streaming radio stations.

Spotify’s new mobile app will be free and ad supported, but its goal is to convert those listeners to paying subscribers, offering a paid option with no ads. Spotify and Pandora take two different approaches to curating streaming music into “radio” stations.

Pandora analyses music you like to suggest similar songs, while Spotify focuses solely on social recommendations—the music people who like your music also like.

“Internet radio is a feature, not a business,” writes BTIG analyst Richard Greenfield in a note this morning. He predicts Spotify will rise meaningfully in the Apple iOS store as the radio service rolls out.

One reason—Spotify’s streamed songs update into Facebook’s newsfeed (unless users disable this feature), which will help spread the word and grow users. But Greenfield’s concerns about Pandora’s future are bigger than just Spotify—he sees the launch as yet another reminder of how low the barriers to entry are and the lack of differentiation is for Pandora.

Pandora is much larger, with 150 million registered users, with 49 million listening within the last 30 days. Spotify has 18 million users worldwide: 10 million are active and 3 million are paying. Like Pandora, Spotify’s free service will only work in the US, because of licensing issues.

But unlike Pandora, Spotify already has a major footprint internationally and it has content deals with all four major labels—Sony Music , Universal Music, EMI Group and Warner Music Group. Without those relationships Pandora hasn’t been able to expand internationally.

Questions? Comments? MediaMoney@cnbc.com

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