Published on September 30th, 2012 | by Hugh Hession0
Apple iRadio threatens to outplay Pandora
Apple has their sights on dominating the customized internet radio medium now controlled by Pandora, Slacker and iHeartRadio. It’s no secret that the company has had aspirations of jumping into online, streaming radio with its new concept. However on September 7, The Wall Street Journal had confirmed that Apple is ready to move forward, as they begin negotiations with the major labels and their associated independents.
Of course, the complication for any company competing in the customized online radio arena, is profitability. Market leader Pandora has yet to realize any profit, despite a 51% increase in revenue. The issue is high royalty rates. Pandora reports that payments paid out to labels and publishers are 64% of their revenue.
Apple plans to leverage their position with an iTunes customer base of 465 million subscribers along with the 335 million owners of the iPad, iPhone and iPods. The difference will be in licensing negotiations. Unlike Pandora, who are regulated by the standard compulsory rate set by the government, Apple is going direct, negotiating specific deals with the majors to waiver the compulsory licenses.
Most likely, Apple will be more interested in what is called the CRB (Copyright Royalty Board) commercial webcaster license, which requires a 0.0021cents royalty per listener including $500 per station not to exceed $50,000. According to Apple sources, they are interested in customizing the webcaster license and stick to the CRB mandated, pure-play rate for .011 cents per play.
What are the majors looking for in a deal like this?
- Tie-in back to iTunes store with the idea that the Apple’s radio platform can promote sales growth.
- The ability to program priority tracks that are compatible with customer profiles. Currently, Pandora does not have this feature.
The challenge will be converting listeners to buyers. Pandora has the ability to purchase songs from its interface and has not been successful in generating significant sales.
In terms of programming relevant tracks to customers, Apple will undoubtedly lean on their Genius technology which recommends tracks based on users activity on iTunes and iCloud. They may also give majors the ability to target specific music fans and push new releases that are compatible with their playlists.