Apple Inc. (AAPL) made a major music announcement during its WWDC 2013 keynote, i.e. introducing iTunes Radio. Apple has intensified talks with major music labels; it is launching a rival streaming music application called iTunes Radio, throwing the company’s digital music resources and its partnerships with music studios-into the fray against other tech giants and to compete with Pandora’s online music service.
iTunes Radio is quite similar to Pandora Media Inc (P), allowing users to create custom radio stations based on song and artists, while also discovering new music through “featured” radio stations.
Apple’s negotiations with record labels have centered on advertising, Apple is trying to use this service as a way to grow its iAd mobile advertising platform and is exploring ways to integrate iAd with iTunes to steer customers back to iTunes. This could be an opportunity for the company to attract new businesses and integrate ads with other Apple services.
At the moment Pandora is the giant of music streaming services with over 150,000,000 users, Spotify has a different business model but still flaunts 25 million users; these two are the older entrants. Coming to the new entrants, Microsoft (MSFT) launched a free streaming music service in October called Xbox Music which was received quite well by the audience and Google Inc (GOOG) introduced its new streaming music service called Play Music All Access on May 15, and plans to charge $10 per month. Amazon is reportedly conducting its own set of negotiations with record labels as well as to support a streaming music service.
As mentioned earlier, Apple’s service functions quite a bit like Pandora, letting users create smart radio stations based on a song or artist that’s already within the user’s music library. Apple claimed that its already providing hundreds of smart radio stations based on genre, but this is something Pandora also offers.
As for pricing, Apple is offering iTunes Radio for free but will have ads, but there is a ad-free service to users who subscribe to iTunes Match, Apple’s cloud-based music library that costs $24.99 a year i.e. $2 a month.
Pandora’s dominance was mostly because of no competition and it was early entrant so it managed to gain more users who have now become loyal customers. Apple has plenty of challenges; Spotify already has Internet radio service in 28 countries and is swiftly adding territories.
Actually Pandora and Apple cannot be compared as Pandora’s services are not global; it has rights to music in the U.S and more recently Australia and New Zealand whereas Apple’s services are going to be available globally.
Apple is striking deals directly with the labels and publishers but Pandora goes through rights organizations in each country, so adding markets is challenging, time consuming and expensive.
Apple has always managed to lure the customers in one or the other way, so even with this new service it will lure customers using some or the other strategies.