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Streaming radio may be the next frontier for Apple's music efforts

Apple reportedly hoping to launch iRadio service this SummerIn a rather interesting article last week detailing music service Pandora's ongoing struggle with record labels' streaming fees, The Verge says that "iRadio," Apple's rumored Pandora competitor, is being primed for a launch this Summer.

"Much has been written about Apple's plan to launch a Pandora-esque service this year. Now multiple music industry insiders have told The Verge that significant progress has been made in the talks with two of the top labels: Universal and Warner. One of the sources said 'iRadio is coming. There's no doubt about it anymore.' Apple is pushing hard for a summertime launch."

Given the seemingly fickle nature of record labels and Apple's well-known intransigence when it comes to negotiations, our advice is to take this report with a grain of salt. Still, rumors of Apple's interest in launching its own streaming music service have persisted for quite some time.

The likeliest sticking points in Apple's efforts to launch an iRadio service are the royalty payments to music labels. Most recently, the New York Post claimed that Apple was hoping to pay record labels about US$0.06 per 100 songs streamed. To put that into context, Pandora currently pays record labels 12 cents per 100 songs streamed. Meanwhile, Spotify (which allows consumers to select individual songs for playing / mobile sync, in addition to its streaming programming) pays record labels 36 cents per every 100 songs streamed.

As to why Apple wants to get into the music streaming business: it's always helpful to follow the money. To that end, approximately 50 percent of Apple's iTunes revenue originates from purchases made on mobile devices. And when you also consider that both Pandora and Spotify are extremely popular iOS applications, it's clear that there's already a huge market for music streaming. It only makes sense that Apple would want a piece of that pie.

With a streaming radio service under the iTunes umbrella, Apple could generate revenue from advertising and music subscriptions -- all the while funneling customers who want to buy songs from the iRadio service to the iTunes Music Store. While record labels might be wary of ceding any ground to Apple, they shouldn't let old grudges get in the way of acquiring new revenue streams.

Streaming radio is a great idea, as long as there's an ecosystem of mobile devices to listen in. While there have been upwards of 500 million iOS devices sold, Apple says nearly 300 million (60 percent) of those devices have shipped with or have been updated to iOS 6 (as of January 2013). The takeaway is that iOS users, more so than their Android counterparts, are much more likely to upgrade to the most current available mobile OS version. [In fairness, with Android updates bottlenecked through the mobile carriers, a much smaller proportion of the Android installed base is eligible to run the latest version. –Ed.]

Consequently, if Apple updates iOS such that an iRadio service is embedded into the Music app -- or perhaps as a featured standalone app, in the same fashion that the Podcasts app has been broken out from Music -- it may very well shake up the digital musical landscape yet again.

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