Pandora: iTunes Radio will be great -- for Pandora

iTunes Radio will spur more people to digital radio from broadcast radio, not from Pandora to Apple, the company's financial chief says. However, Pandora's international horizon remains dim by comparison.

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Joan E. Solsman
3 min read

Pandora says it isn't sweating the coming of Apple's iTunes Radio later this year. In fact, it's looking forward to it.

"I think there are a lot of benefits" from the introduction of iTunes Radio, Chief Financial Officer Mike Herring said Wednesday at the Canaccord Genuity Growth Conference in Boston, Mass. iTunes Radio will bolster the exposure of digital radio and accelerate the move to it from traditional broadcast radio, he said.

Herring also compared the entrance of Apple's long-awaited radio product to the introduction of another behemoth's online music service: iHeartRadio from the country's biggest broadcast radio network, Clear Channel. "When iHeartRadio launched a couple years ago, we had the same questions," he said. "We've gone from 50 percent market share to 70 percent market share, and they've stayed flat. ... We won't do much different."

Pandora reigns on top of the Internet radio market, with more than 200 million registered users, 71.2 million of whom were regular listeners at the end of last month. Clear Channel's iHeartRadio surpassed 30 million registered users in May, and Spotify -- the on-demand music-streaming service that folded in a radio product in 2011 -- has more than 24 million active users, by comparison.

But even at the top of the pack, Pandora only represents about 7 percent of U.S. radio listening. Herring's contention is that Apple's iTunes Radio will speed the shift of terrestrial radio listening to digital, not Pandora listening to Apple.

That stance turns its back on a big difference between Apple's product and Pandora's, which is global reach. Pandora has rights to music in the U.S., Australia, and New Zealand, but Apple's direct agreements with music labels and publishers generally give it rights to the countries where iTunes operates, numbering above 100. Apple is rolling out iTunes Radio in the U.S. only in the fall, but the company will add other countries over time, according to Apple executive Eddy Cue's unveiling of the service earlier this year.

On Wednesday, Herring said that the company is prepared to enter other countries as soon as financially viable deals crop up. Unlike Apple and on-demand services like Spotify, which strike direct deals with labels and publishers, Pandora works through rights organizations in each country.

Apple executive on a stage with iTunes Radio's logo projected behind him.
Apple's Eddy Cue introducing iTunes Radio. James Martin

"We've yet to see any direct-licensing deal internationally that's financially viable," he said, referring to how competitors have gone about international expansion.

He added that in Australia and New Zealand, associations of songwriters and performers were willing to set rates that made the economics of entering there work for Pandora. The company is "hoping to do a couple things there" that prove its bona fides abroad and how Pandora's entry in the market "is beneficial for the artists," Herring said.

"If we do that there, then we'll be able to have those conversations in the rest of the world," he said.

Pandora, as the biggest Internet radio service, has come under fire from musicians in the past for how little they're paid to be played on Pandora. Pandora has said it's still paying artists much more than FM radio, which broadcasts music for free.

Even at a level of royalties that artists have grumbled about, licensing costs still take up roughly two-thirds of Pandora's revenue, which is mainly driven by ads.