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Thursday, Sep 06, 2012 9:52pm
WSJ: Apple working on streaming music, custom 'stations'
A report in The Wall Street Journal claims that Apple is in talks with labels for a customizable radio service not unlike the service offered by Pandora and more recently by rivals such as iHeartRadio and Spotify among others. The service, which would offer streaming music and presumably be built into or connected to iTunes, would allow users to create virtual "stations" that offered music by, and similar to, a selected artist as a way of discovering additional bands.

Pandora, which despite promises to the contrary has been limited to the US for years, creates its "stations" through the used of a Music Genome Project database that analyzes music the user votes up and selects tunes it thinks the user will also like. Though Pandora and others usually offer links to buy the chosen music, the services are generally paid for through ads and subscription fees. An Apple-based service might minimize or scrap ads in favor of steering users towards iTunes purchases, or use the service to promote its iAd program.

The source for the report, said to be unnamed "people familiar with the matter," said that the service would work across both Mac and iOS devices and may even be offered to PC users as either its own app or as a part of iTunes, which is already installed on most Windows computers. The company has always derided subscription-based music services, calling them "rented" music and pointing out that users must pay forever or lose any songs they've acquired through such a service.

Generally speaking, subscription services have largely failed to do well until Spotify came along with a very modest pricing plan, an emphasis on streaming discovery, and (originally) generous terms for free listeners. The service, under increasing pressure to show a business model that pays artist more fairly, took in nearly $900 million in revenue this year but is reported to be paying artists in thousandths of a cent per stream, meaning bands with less than millions of existing fans are unlikely to see any significant revenue from streaming. It remains, however, the second-largest source of online music revenue behind iTunes.

Apple already offers a large array of radio stations (both commercial and internet-only) through iTunes, some of which carry third-party advertising. Pandora and other services also carry ads but focus on minimal or no interruption of the music, an approach Apple might adopt if its service carried third-party advertising at all. The company is also planning to add Facebook integration to its latest OS X and iOS versions, a feature that could be tied in to any streaming music service and give it a powerful social element that could promote adoption of the service.

Apple had previously tried adding some social features to its ill-fated Ping service, but found that users tended not to stay on the screen while music was playing and didn't respond to yet another sign-up service, particularly when planned Facebook integration fell through. Ping eventually added Twitter integration but the move was seen as too little too late.

Online radio-like services have proven to be a difficult field to profit in. Pandora, which pays a blanket royalty rate based on federal guidelines, has never made a profit, and Spotify says that it relies on user subscriptions for 85 percent of its revenue, making the remaining 15 percent through advertising. It too, like Pandora, has yet to declare a profit.

Nevertheless, Pandora has proven to be a popular alternative to iTunes for internet music listeners, according to ratings company Neilsen, and Spotify has boasted of 16 million active users -- though only a quarter of those pay the subscription fee. Pandora says it has 55 million users, the highest count of any non-iTunes service, but doesn't have any current figures on how many use its subscription tier -- though at the time of its IPO in 2011, Pandora noted that about one percent of users paid for the service.

Rather than rely on the "compulsory" royalty rate used by webcasters, Apple is said to be negotiating a separate license arrangement with the major and indie labels that would give it more flexibility and fewer restrictions, for example allowing "stations" dedicated to a single artist -- currently forbidden under FCC regulations. A separate deal could also give the company more leverage, for example offering to sell a frequently-played song at a discount from the normal iTunes price. Apple's iTunes has, at last report, over 400 million accounts on file.

Were Apple to use the streaming service to carry iAd spots, it could prove to be a major boost to the struggling online ad agency, which has seen high executive turnover and fallen expectations, even though the ads it features are generally very highly-regarded and most clients report that their campaigns are successful. [via The Wall Street Journal]