With iTunes Radio, Apple Takes Aim at Pandora
A decade ago, Apple transformed the music business with its iTunes store. Now what the music industry expects from Apple is less of a revolution than a helping hand.
Appleâs newest music feature, iTunes Radio, will be released on Sept. 18 as part of its iOS 7 system update, the company announced on Tuesday. The service is a sleek take on Internet radio, and Appleâs ability to place the app on millions of its devices gives it an enormous potential audience from Day 1.
âItâs a huge opportunity on a global basis to accelerate the transition of radio listeners and advertising dollars from terrestrial to digital,â said Stephen Bryan, the executive vice president for digital strategy at the Warner Music Group, which releases music by Green Day, Bruno Mars and hundreds of other acts.
The service is a threat to Pandora Media, which dominates Internet radio. But music and advertising executives say that the magnitude of that threat is unclear, given Appleâs relatively late entry into streaming music and Pandoraâs strong market position. Both offer free streams of music tailored to a userâs taste and supported by advertising. In August, Pandora had 72.1 million active users â" almost all in the United States â" who streamed 1.35 billion hours of music, according to data released by the company.
âAt this point Pandora is one of the leading recipients of mobile advertising revenue, and is one of the most popular apps, period, across devices,â said Clark Fredricksen, a vice president at eMarketer, a research firm. âItâs tough to see it getting killed.â
Instead, record labels and music publishers hope that Appleâs immense marketing power will attract more advertisers and help popularize Internet radio around the world. ITunes Radio will at first be available only in the United States, but it is expected to be introduced internationally soon. Apple operates iTunes stores in 119 countries.
âItâs hard to say that Pandora hasnât helped make Internet radio mainstream already,â said Glenn Peoples, the senior editorial analyst at Billboard. âBut iTunes Radio can help it grow and can change the impressions of it in the minds of advertisers and sponsors.â
Apple is the single largest retailer of music, its downloads providing labels a crucial source of revenue as sales of CDâs drop. One feature of iTunes Radio that music companies are particularly grateful for is a prominent button to buy a song as it streams. Subscribers to Appleâs iTunes Match feature, for $24.99 a year, can have that song instantly linked through the cloud to all of their Apple devices.
In the economy of digital music, one 99-cent download can be worth more than hundreds of streams. Appleâs deals with labels call for it to pay 0.13 cents for every song streamed on iTunes Radio during its first year of operation, according to reports in Billboard and elsewhere based on Appleâs licensing contracts. That is more than Pandoraâs current rate of 0.12 cents, and Apple will also pay music companies a portion of the serviceâs advertising revenue.
Apple is entering an already crowded Internet radio market, which besides Pandora includes Clear Channel Communicationsâ iHeartRadio app; radio functions offered by on-demand services like Spotify; and others like Songza that supply ready-made playlists for various occasions, like working out or hosting a dinner party. This week Microsoft expanded its Xbox Music service, which includes a radiolike function, to work on Apple and Android devices.
So far Pandoraâs investors have not fled. Since news of Appleâs plans first emerged a year ago, Pandoraâs stock has roughly doubled. On Tuesday it closed at $20.35, up 1 percent for the day.
A version of this article appears in print on September 11, 2013, on page B8 of the New York edition with the headline: ITunes Radio Takes Aim At Pandora.