Spotify: As Media Goes Gaga Over Launch, Pandora Stock Falls

Plus: Spotify investor Sean Parker's letter to Facebook friends proclaiming a "new golden age of music."

Were Pandora investors reacting to Spotify's U.S. launch when the company's stock dropped immediately after the markets opened Thursday morning? Pandora opened at $18.12 and bottomed out at $16.65 a couple hours later.

It's certainly possible that the big debut of Spotify impacted the market's perception of Pandora. Spotify could be considered a competitor to Pandora even though it is an on-demand service (lean forward) and Pandora is an Internet radio service (lean back). Assuming people listen to a fixed amount of music, time spent with Spotify is time not spent listening to Pandora. And it's fair to assume some consumers will consider subscribing to either one service or the other (but not both). Thus, Spotify may eat a bit into Pandora's subscription numbers. It's not a big threat, but the threat exists.

But maybe the market realized its overreaction. The stock climbed throughout the day and was actually up $0.01 at one point before closing down 0.78% at $17.79. And it's entirely possible that once people actually read about or experienced Spotify, they realized its mediocre radio function probably isn't going to peel away too much of Pandora's share of listener hours.

Then again, the fact that yet another analyst opened coverage of Pandora with a "sell" rating -- this time with a $12 target price -- might have resulted in some profit-taking by investors who bought in the $12 to $13 range in mid-June.

Spotify's U.S. launch also marks internet billionaire Sean Parker's third act in the tech world, after helping launch Napster more than a decade ago and becoming an investor in Facebook, famously portrayed by Justin Timberlake in the movie The Social Network. On Thursday, he took to his own Facebook page to sing the praises of Spotify. Parker's full text, courtesy of TechCruch, is below.   

At long last… Spotify launches in the US!

My thoughts on Spotify launch…

Today represents the realization of a dream. For a decade I have waited for a music service that could rekindle my excitement about music by enabling music to be shared freely across the world — all the while empowering artists to reap the economic benefits of selling their music.

Spotify is the service I have been waiting for.

Since Napster the recorded music business has been steadily declining and, until now, there has been no light at the end of the tunnel. Today’s historic announcement marks the reversal of this downward trend and the beginning of a return to growth by the recorded music business.

Spotify promises to get people excited about music again, and the result will be a new golden age of music–more people discovering and listening to more music than ever before. Spotify is removing the barriers to sharing music with friends so that music can move freely and find its fans organically. In this hyper-efficient system great music will find its natural audience. This means that more artists will find success, more fans will discover them, and artists will make more money selling their music than they thought possible. The rusty gears of the record business will turn again.

Since Spotify takes music viral, listening to music online is finally going to be a social experience. (Just like it’s always been offline.) And by making music social the experience of discovering and listening to new music will be more fun than ever before. While Spotify can be downloaded and used or free on the desktop, users of Spotify will need to purchase content when they want to take music with them “on the go” via their iPod or iPhone. In this sense, Spotify is the answer to piracy: migrating millions of piracy-based music fans to a legitimate platform where their consumption of music can be monetized and the artists who dedicate their lives to creating music can finally get paid.