Apple's iTunes Radio reminds us that music is a weapon

iTunes Radio is breaking cover as the all-new Apple [AAPL] streaming music service gets closer to launch. Here's what we know about the service, placed in the wider context of what's happening around music at the moment.

[ABOVE: Apple's iTunes Radio demo at WWDC.]

Ad-free fee

Apple's music streaming service will be ad-supported and free to iPhone, iPod touch, iPad, Mac and PC users running iTunes available as part of its huge product reveal in Fall. If you are an iTunes Match subscriber ($24.99/year) you can listen to the songs ad-free. (Oh and it will also work on Apple TV…which itself seems set for the addition of a bunch of media and entertainment apps.)

If you're outside of the US you will be waiting for iTunes Radio, which Apple this morning confirmed, "will launch in the US first."

Apple didn't comment on what follows, but I don't expect international users to be kept waiting too long, as I feel certain the company intends a fast strike against Europe's Spotify, which has been cannibalizing iTunes Store sales. A report today suggests the launch will extend to different territories in 2014.

What is iTunes Radio?

In brief, it's a more elegant version of Spotify/Pandora that offers both a la carte music downloads alongside all you can eat access to the entire iTunes catalog. iTunes Radio will let you stream whatever music you wish, and will also include radio stations, artist playlists and more.

The service will deliver personalized stations based on your listening history and past iTunes purchases, allows you to build playlists up from what you are listening to, and has Siri support so you can order the service to give you some decent tunes.

One element to the service that doesn't sound so good is AdAge's claim that: "iTunes Radio will not allow users to search and play a song on-demand." I contacted Apple to confirm or deny this, but the company spokesperson I communicated with declined to comment. I do hope AdAge is incorrect in the claim.


How the ads work

AdAge this morning reports on the first tranche of high profile advertisers to have signed up for the service. The report also tells us how ads will be delivered to iTunes Radio users:

  • Audio ads: Just like radio
  • Video ads: You know, like commercials
  • Slate ads: "Interactive display ads that will take over whatever screen the consumer is using"

Audio ads will be served every 15 minutes while video ads will be served on an hourly basis, but only when the consumer is likely to be looking at their device.

There's numerous people who may complain at the prevalence of advertising, but this isn't unusual: Spotify serves up a ton of incredibly tedious ads, but costs two or three times as much as Apple will be charging in order to get rid of those ads. Apple's iTunes Match is a better deal than Spotify.

What ads can you expect?

If you don't use iTunes Match then you can expect ads from some of the biggest global brands, including Nissan, Pepsi, Procter & Gamble and a major burger chain relatively recently discussed by UK chef, Jamie Oliver.

AdAge suggests the deals reached extend to tens of millions of dollars. That's interesting as it hints that competing firms in this space will see their income hammered over the crucial Christmas season as Apple sucks the ads budget out. This could cause problems to the likes of Pandora and Spotify.

These services face a second threat: Word before the iTunes Radio announcement suggests labels insisted on pretty generous deals in order to push their content through the service, including a share of advertising.

[ABOVE: Music discovery may help you find things you've never found before, such as this little gem.]

What's the fallout?

In the event Apple's service succeeds then it seems logical to expect Pandora and Spotify will be forced to accept similarly generous deals -- hopefully they will then do the decent thing and pass the additional cash over to their artists, though like Thom Yorke I won't be holding my breath for this.

The impact of Apple's seizure of the top flight advertisers on Spotify and Pandora could be described within these remarks from Time:

"Spotify’s annual losses are mounting as the company expands, coming in at $78 million in 2012, according to the New York Times. Pandora has yet to find a path to profitability, and posted a net loss of $38 million in the last fiscal year. The biggest expense for both companies is, unsurprisingly, music. Spotify pays almost 70% of its revenue to music-rights holders, while Pandora spent about 60% of its revenue acquiring music last year."

In other words, Apple's iTunes Radio service seems likely to hurt its competitor by taking some of the more lucrative advertisers out of the game.

Google faces the music

If iTunes Radio is successful -- and there's little reason it shouldn't be given the company's financial resources and multiple income streams -- then you must also consider iTunes Radio to be a big blow against Google. Why? Because the ads are served up by Apple's iAds network. That network has been floundering a little because it lacks the reach of Google, but the potential of placing ads within Apple's radio station may enable Apple to take a big chunk of Google ad revenues.

It's unwise to ever forget that Google is a bigger enemy to Apple than Samsung, whatever positive spin former Apple board member, Eric Schmidt, may attempt to place on the two firm's relationship. (When he says "improved" I can't help but think he means Android market share now exceeds that of iOS, which may be seen as an improvement of sorts, though it hardly makes them buddies.)

So is this the end of music sales?

Of course not. The Spotify experience shows us that people like to explore music using streaming services, but will still invest in the tracks they most like. That's where Apple hopes to reap rewards, given that iTunes Radio users will easily be able to download a track or album using the Buy button within the radio player. Given people already trust iTunes the music discovery of iTunes Radio should enable the company to at least consolidate music sales.

All about the ecosystem

“Music streaming is one of many elements Apple is attempting to tie together so that it can have the most comprehensive entertainment offering in the industry,” Bill Kreher, an Apple analyst at Edward Jones told Time. “The addition of iTunes Radio enhances the overall ecosystem.”

There's a few more key things to consider when thinking on Apple's music plans: iTunes Radio will eventually be made available free inside every Apple device, including all those cheaper iPhones the company's so close to launching in the next few weeks. That means that every iPhone purchaser will also be acquiring access to all the music they can ever want -- that's not such a bad deal.

The service extends across Apple's product range, so it suggests new opportunities for seamless digital music playback around the home. It will surely be possible at some point soon to simply walk around your home and have your chosen piece of music follow you from room to room, playing through your Mac, PC, iDevice or Apple TV.

iTunes Radio is just one of the weapons Apple is bringing to battle in the next few weeks as it sees if it can turn its Fall into gold.

Google+? If you're one of those who likes to use social media and also happen to be a Google+ user, why not join AppleHolic's Kool Aid Corner community and join the conversation as we pursue the spirit of the New Model Apple?

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Copyright © 2013 IDG Communications, Inc.

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