Apple still needs the other major labels, but this brings it a step closer to launching its Internet radio service.
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Paul Sloan is editor in chief of CNET News. Before joining CNET, he had been a San Francisco-based correspondent for Fortune magazine, an editor at large for Business 2.0 magazine, and a senior producer for CNN. When his fingers aren't on a keyboard, they're usually on a guitar. Email him here.
Apple is getting closer to rolling out its free Internet radio service.
The company has reached a licensing deal with the world's largest music label, Universal Music Group, according to people familiar with the situation. Apple is still in deep negotiations with Warner Music Group on some specifics. It also still needs an agreement with Sony Music, which has been tougher for Apple to get on board.
Apple spokesperson Tom Neumayr declined to comment.
The deal with Universal, which the Financial Times reported Thursday, could become very lucrative.
After much back and forth about the terms, the deal reached with Universal -- and the one on the table with Warner Music -- could prove far sweeter for the music labels than what they get from Pandora, the service that closest resembles what Apple is building, sources say.
While that alone could be lucrative because of Apple's sheer size -- and Apple plans eventually to roll this service out globally -- the hope for the labels is much bigger because it comes with two other potential revenue sources. Apple has told the music labels that it plans to build out its ad business, including potentially adding audio ads such as those heard on Pandora's free service.
Under the deal, sources say that rights holders would get about 50 percent of the ad revenue, which is an unusually high share. It's also a bit of a gamble because, as it is now, Apple's still needs to build out the iAd business to serve a global Internet radio service. The reason the labels pushed for a higher per-stream rate is because Apple's radio service might roll out with little, if any, advertising, sources said.
Apple is also paying an advance, sources say.
The product, which would be tied to iTunes, would be made for mobile devices. It would contain some features not available on Pandora -- such as the ability to rewind a song from the middle of it, sources say -- and would have a simple button that would let users easily purchase a song. This, too, could be a boon to the labels, which collect roughly 70 percent of every dollar from an iTunes purchases. Currently, there are about 500 million iTunes accounts; Pandora, by contrast, has about 70 million active users.
The deal underscores Apple's desire to make a radio product happen amid growing competition. There's been a proliferation of streaming music services with both free and paid plans, from Pandora to Spotify to Deezer. Apple rival Google is also set to launch its own streaming-music service as part of YouTube. Sources told CNET recently that Google is aiming to launch its product, which would work on desktop and mobile devices, this summer and that it is also working on another subscription music service for Google Play, which could roll out first.
Apple has told the labels it wants to launch its streaming music service this summer.