Yes, iTunes Radio could crush Pandora. That's just for starters

Apple might seem late to the streaming-music world, but really the digital music revolution is just getting going.

Paul Sloan Former Editor
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.
Paul Sloan
6 min read

Eddy Cue unveiling iTunes Radio at WWDC. James Martin/CNET

iTunes chief Eddy Cue unveiled Apple's iTunes Radio at the company's big developer conference in San Francisco this week, and it didn't take long before a chorus of rivals and pundits dismissed the product as, well, no big deal, especially considering that so many streaming-music services already exist.

The current king of Internet radio, Pandora, made sure the press was aware of how large it was, with 200 million registered users, 70 million of whom are regular listeners, and 5 billion stations created. Even Nokia -- that's right, Nokia -- trotted out a VP who suggested Apple was playing catch up, proclaiming, "We launched our streaming radio service in 2011."

Given Apple's history of product pyrotechnics, the company's long-awaited entry into the music-streaming business was a relatively low-key affair. That's likely because of a lack of preparation time, considering that Apple managed to strike deals with all three of the major music labels only on the Friday before Monday's keynote.

"Today we're introducing an amazing way to discover new music, and we call it iTunes Radio," Cue said as he showed the service, demonstrating how the stations would be curated by a music team -- yes, humans -- at Apple. He showed how easy it is to scroll around the offerings, and played Led Zeppelin's "Whole Lotta Love" for the 6,000 Apple developers in the audience. But considering this is a service that Apple had been struggling to cobble together for more than a year -- and that this is the company that ignited the current digital-music era with the launch of the iTunes Store a decade ago -- Cue was surprisingly restrained. Total demo time: just under four minutes.

Cue didn't once declare iTunes Radio awesome, or even delightful; nor did he describe it as the best streaming service around. And while other Apple executives participating in the keynote before him took turns slamming Android, Cue didn't make a single mention of Pandora, the service that most closely resembles Apple's. iTunes Radio, then, will itself have to create the excitement. Assuming that it works well and that Apple's strategy plays out, that should happen.

This is a giant opportunity for Apple, which also makes it Apple's to mess up.

Apple's ambitions
For all the attention given to streaming music, which now makes up the fastest-growing segment of the recorded-music industry, much of the world is still listening to AM/FM radio. Which is why network radio in the U.S. captured the bulk of the roughly $14.8 billion advertisers spent in 2012. At the same time, though, more and more radio fans are listening online, either by streaming AM/FM stations or by tuning into pure digital radio plays like Pandora.

While the shift to digital radio -- whether that's delivered up by algorithms or, as is the case with Pandora and Apple, by a mix of human selection and machine -- is growing fast, it's still in the early stages. Pandora, with its huge audience, says it has 7.33 percent of the total U.S. radio listening audience. That means plenty of people have yet to migrate to the Pandora camp -- and those are people Apple is going after as well.

But here's Pandora's big challenge. It's not a global service. Far from it. It has rights to music in the U.S. and, more recently, Australia and New Zealand. Unlike Apple, which struck deals directly with the labels and publishers, Pandora goes through rights organizations in each country, so adding markets is challenging, time-consuming, and costly.

"It is our sincere hope to someday be able to offer Pandora globally," says Pandora spokeswoman Amanda Livingood. "Our posture with respect to further international expansion is best described as 'patiently opportunistic.'"

So while all the talk about how iTunes Radio is so much like Pandora is fair for now, it is also way too U.S.-centric for Apple's global ambitions. When Apple rolls out iTunes Radio this fall, it will be available only in the U.S., but Cue said Apple will add other countries over time. Those, according to music industry insiders, include the U.K, France, Germany, and Japan, but the service could be big very quickly. The agreements Apple has with the music labels and publishers generally give it rights to the countries where iTunes operates, which is now in 119 territories.

An Apple representative wouldn't comment on plans beyond the U.S. rollout.

Although the press is comparing iTunes Radio features to Pandora's features -- check out a side-by-side from CNET's Donald Bell here -- huge swaths of the world have nothing resembling either service. And that's a giant, lucrative void that Apple can try to fill.

"This is the first global radio deal that any service has established," says Michael Nash, a music industry veteran and former head of digital for Warner Music. "This type of service does not exist in many places. This is not about feature enhancements. Apple is in a position to execute, and no competitor has a business partnership with the music industry or a music operation in place to match them."

Because iTunes is already global, Nash points out, Apple has data that understands local tastes and genres in a way that others do not. (Remember, iTunes already has 575 million customers). Pandora, which relies on musicologists to log music as part of the 13-year-old Music Genome Project, just can't compete in this way -- even if it were to expand into new markets.

"Apple has the best music consumption data of anybody," says Nash, who worked on numerous deals with iTunes. "They know not only what's in your music collection, but what you listen to and how often you listened to it. That's huge in driving recommendations."

Taking it to the road
And then there's the car -- where, according to Arbitron, the average American spends 15 hours a week. As Cue talked about at WWDC, Apple is working with more and more automakers to integrate iOS functions right into the car's LCD. He rattled off a number of partners, including Honda, Mercedes, Nissan, Ferrari, Hyundai, Kia, and Infiniti.

Pandora, too, is working with plenty of automakers. Included in the stat sheet it sent out were these figures: Pandora comes in 175 aftermarket devices and is built into more than 90 different car models.

iTunes chief Cue showing off iOS car integration at WWDC. Apple

It's a natural fit. According to one survey, 84 percent of respondents said they listen to AM/FM radio while driving. More telling, though, is that among the 18- to 24-year-old group, roughly one in five people said they stream music on Pandora via their cell phones while driving. You can see where this is all going: Get it all built into the car and this will be how many people will want their music.

Couple this with the major changes to the voice-activated Siri technology announced at WWDC, and, BTIG analyst Richard Greenfield says, iTunes Radio is a clear threat. Siri, he wrote, is "key to giving iOS an important place in the car and beyond, and making iTunes Radio a true 'Pandora Killer.'" Especially if iTunes Radio -- not Pandora or, say, Spotify -- is front and center in the dashboard.

Of course, Apple has plenty of challenges -- and new challengers. Spotify, with an Internet radio service in 28 countries, is quickly adding territories. Google, meantime, rolled out a Spotify-like subscription service in May that's part of Google Play, and it could decide to add a free tier as it tries to compete. It's also working on a music service connected to YouTube.

But for the past decade, Apple has lured people to its hardware through entertainment content, beginning with music. And music, with iTunes Radio's 27 million tracks to Pandora's 1 million, could further that trend for the next decade. Especially if Apple unveils a cheaper iPhone and even a new device -- say, a smartwatch -- through which it could send a personalized sound track.

Might history repeat? Consider that Apple was not first to market with a digital music player, a smartphone, or a tablet computer. Yet in each instance, the extra time paid off. Draw whatever conclusions you prefer, but this much is beyond debate: Apple has proved that when it comes to technology, the race does not necessarily go to the one first out of the gate.