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"iRadio is coming. There's no doubt about it," a music industry source tells The Verge's Greg...

"iRadio is coming. There's no doubt about it," a music industry source tells The Verge's Greg Sandoval. After months of tough negotiations with studios, Apple (AAPL) is said to be aiming for a summer launch. The company's reported plan to limit the service to Apple hardware stands to affect its popularity with customers who listen to music on both Apple and non-Apple gear. Sandoval adds the music industry has "a love-hate relationship" with Pandora (P), believing (in spite of Pandora's gripes about royalty rates) it "chokes off demand" for more profitable services.
Comments (44)
  • To bad the market wasn't open today. I'm sure the stock would have been up big time. Maybe not.
    29 Mar 2013, 07:11 PM Reply Like
  • Zzzzzzzzzzzzz
    29 Mar 2013, 07:12 PM Reply Like
  • Wake up and smell the profits.
    29 Mar 2013, 07:50 PM Reply Like
  • Whatever it means for AAPL, this is the news P has been dreading. They have relied on the iPhone for mobile distribution ( and now face head-to-head competition with the dominant player in digital music, on that competitor's home-field platform, and that competitor will be armed with direct label deals enabling them to enhance service and expand globally (P can't expand because they rely on US statutory licensing). There's a reason P's stock tanks every time this rumor comes around and this time it's the preface to the service's launch.
    29 Mar 2013, 07:27 PM Reply Like
  • On this Good Friday can't we all agree on one thing? That Pontius Pilate should have put the labels up on the cross.
    29 Mar 2013, 08:23 PM Reply Like
  • Microsoft left a lot of small companies in the dust as they marched across tech land in their heyday.


    What else could apple add to their ecosystem? iRadio -- cool.


    Only on Apple hardware? So what? That's all I need and own anyway.
    The fewer the tech vendors to deal with, the better for my TCO.
    iPhone/iPad is my core tele-comp platform. Apple, load me up!


    Will be interesting to see when the DOJ first comes calling.
    Will they call on an iPhone? :)
    30 Mar 2013, 12:39 AM Reply Like
  • Digital,
    They don't rely on the iPhone (that article is from 2010), they are in over 1000 devices including radios, TVs, cars, refrigerators! not to mention over 50M Google play downloads, anyone checked who's winning that smartphone war? Also, if Apple manhandles this the way they did Google maps they will push more customers to Droid. (I'm *this* close myself, for years I've been a self-proclaimed iPhone-hugger, but still mad about my maps! I have downloaded Google maps but it won't work with Siri or my contacts. Am I the only one disappointed with Apple lately? What happened to the Steve Jobs dream factory? Now it's the Tim Cook copycats, and not very good at it!)


    Also, P can (and I believe will) expand globally, they just have to pay non-Pureplay rates for their international streamers (as others like Spotify already do, and as P already does in Australia and New Zealand).


    I also see this move as increasing Pandora as an acquisition target by Apple's competitors (Google, Amazon, Microsoft). Btw, just checked and the Pandora "Buy" button still connects with iTunes (and Amazon), will let you know if this changes!
    30 Mar 2013, 09:49 PM Reply Like
  • dgulick,


    Pandora said a few years ago that the iPhone “doubled their growth overnight” and the importance of Apple to Pandora’s reach hasn’t changed much since then, with many commentators noting more recently that “a big chunk of Pandora's traffic comes from Apple devices.” ( This is because Apple consumers significantly over-index on entertainment consumption, as a comScore study released just this past week concluded, including specifically radio: “The average iPhone user spent 530 minutes on digital radio during February, compared with 203 minutes for Android users.” ( The number of devices providing distribution is not the point, it’s which distribution partners deliver scale and engagement, and no partner is more important to P than AAPL.


    P is licensed under statute in the US. There is no statutory path to international licensing, no UN treaty on Internet radio. P can only access international markets by engaging the music companies in direct licensing negotiations. (Spotify and others you mention have licensed radio internationally as part of their direct agreements.) P has so far been completely unwilling to seek such direct licenses; the music companies have expressed unhappiness with the rates P is currently paying, so P’s reluctance is understandable. If they change course, it won’t be easy or cheap; it has taken AAPL over a year, with all their leverage, and if P does as you suggest and simply pays a higher rate, like .22, that means their content costs go up 83%, which would trigger huge losses. And P’s recommendation engine, which is powered by human musicological analysis, has been programmed primarily for the US music market and doesn't easily scale—it would take years to build up the database to effectively take on the local repertoire of other music markets employing their approach.


    It is highly unlikely P will be acquired by a big tech company. All of the usual suspects have or will soon have directly competitive streaming services to P in the market, which they have put significant resources into planning, licensing and deploying. (,,,,, But more importantly, as I have noted elsewhere, P is a very poor acquisition target because of the nature of its statutory licensing that will remain in effect through at least 2015. Right now, as a stand-alone Internet radio service, P can opt into a "pure play rate" that is the lowest rate available. In order to get that rate, P must agree to a floor of 25% of their total revenue. Since their total rev and Internet radio rev are the same, this is an "ice in winter" give for them. However, if Google, Microsoft, Amazon or anyone else acquired them, that company would have to either pay the higher per play rate that a media conglomerate like Clear Channel or CBS pays (.22 per 100 plays vs .12 per 100 plays) or opt into a floor of 25% of their total revenues. No diversified business has been willing to commit 25% of all their revenue just to license Internet radio. The current rate structure means any acquirer of P would effectively end up with an 83% increase in content costs. Given that P is presently operating at a loss because of its already high content costs, this is clearly a non-starter. As convoluted as all this sounds, this is the reality of the situation when you rely on the government for your business model.


    Again, there’s a reason why P’s stock plummets every time the iRadio rumors have surfaced in the past. This is a major competitive threat; it will not lead to their acquisition.
    31 Mar 2013, 01:59 AM Reply Like
  • Digital,
    Thanks for the response and the links. The article on iPhone vs Android is especially fascinating. I was not aware the degree to which iPhone users are larger consumers of digital radio, but it's worth noting that android users outnumber iPhone users 3 to 2 and continue to gain market share. So the total internet radio consumed is more equivalent between the 2 platforms and the gap is closing. Also, this is an evolving space, and the competitors appear to be well aware and addressing this issue, from your article: "...the Galaxy S4, which starts shipping in April...focused on the device's technological superiority. The S4's unique camera and music-playing features were particular points of emphasis."


    Regarding your comment "P has so far been completely unwilling to seek such direct licenses", this is not true, they simply have had better results through statutory licensing. Pandora may be unprofitable currently, but those that are directly negotiating (Spotify et al) are absolutely bleeding cash, it will be interesting to see the royalty deal that Apple negotiated, I suspect it will be worse than Spotify. The relationship between Apple and the Music industry is not as cozy as you believe, look at the DRM fight in the early days of iTunes, Apple also removed their support for SOPA.


    You are right, a Pandora acquirer would lose the non-sub pure-play royalty rates, but the rate increase would only be to a similar level that they would have to pay for a service that they developed in-house. So after removing that from the equation, it would still be a huge advantage for someone to buy Pandora and get all of their software (genome plus 1000 partner devices), immediate scale (68M listeners, 77% of the internet radio market, 8.5% of total radio market), subscribers (stickier customers growing at 50%/yr nibbling at SiriusXM $3.4B/yr subs) and a mature ad department that is poised to pounce on FM ad revenues ($15B/yr). Also Apple has not been very successful with advertising (iAd was a dismal failure), it will be interesting to see how iRadio really does. I know I will have no reason to switch, I suspect many feel the same.


    But more on the acquisition question, I'm sure you saw the news that Microsoft is paying for free Pandora for Windows 8 phone buyers (all 10 of them! ha! but still, doesn't preclude a possible acquisition by one particular deep pocketed rival with some general animosity towards Apple and a desperate need to jump start its lagging smartphone venture).


    Also, I just had an ad for Google Chrome on Pandora. Google is trying to grow their Google Play feature which is well behind its rivals (iTunes and Amazon). A Pandora purchase would dovetail perfectly and direct listeners to their digital purchases, not to mention similar philosophies between the 2 companies (ad based vs. subscribers).


    "P’s stock plummets every time the iRadio rumors have surfaced in the past". P fell off a cliff on the first announcement, but has recovered and has since sped to 40% above the pre-iRadio panic. The news on iRadio is out, the concensus is that the threat is overblown. iRadio will certainly have an impact on P, but to price P, you need to compute what level of profitability P can grow to and maintain, and even if iRadio steals ALL of the iPhone users (except for me!), if this means that the fair-market value for P drops from 60s to 40s, then the shares are still a steal.
    31 Mar 2013, 04:07 PM Reply Like
  • Appears that iGame is on the way also.


    iWearable (watch, etc.)


    What else can they do?
    I would still like to see more iMedDevices.
    31 Mar 2013, 04:12 PM Reply Like
  • dgulick, I thank you for another thoughtful exchange. I always read your comments about P with interest because you research the subject matter and put a lot of thought into what you write.


    Just a few things in reply, as I think with our lengthy exchanges, we’re losing our small remaining readership. I am highly confident in the accuracy of my statement that P is nowhere with direct label talks about international expansion. They have never had any agreement outside statutory licenses. The labels forced P to block international distribution in the absence of direct deals six years ago ( and P has not obtained or sought any kind of deal to address the blackout since. P went to war with the labels with their IRFA push this past fall, so there is renewed bad blood. P is in no position to deliver direct label deals of any kind anytime soon.


    Regarding the big tech companies that might be P acquirers, they all have the technological capability to offer an adaptive radio service, so they don’t need P for that. If some of them decide its easier to acquire the technological capability, there are plenty of inexpensive platforms out there to address that need, which is what led Clear Channel to buy Thumbplay and Samsung to buy mSpot. These companies don’t need to spend billions to buy a streaming radio platform. What the big tech companies need is the right business model to enable success. That is why these companies are seeking direct deals and not a statutory license, like AAPL, or are planning sophisticated workarounds, like GOOG, with their use of YouTube’s video licensing arrangement to power a mobile music service.


    Regarding the reaction of P and AAPL investors to the renewed iRadio buzz and probable launch later this year, we will just have to wait and see.
    31 Mar 2013, 04:48 PM Reply Like
  • "P is nowhere with direct label talks about international expansion."


    They launched Australia and New Zealand last year. They have also negotiated with Sony-ATV outside of ASCAP and BMI


    Yes, the rate increased, but as you know my thesis is that mobile ad rates have much room to grow and that P will, in the future, provide revenues for the labels, and profit for themselves, even at current royalty rates. Also, they will be able to play the labels off each other as the free market returns to the music industry (you can imagine P's recommendation engine tweaked to favor songs with lower royalty rates, not unlike Netflix back in the DVD/Blockbuster wars, as Netflix's recommendation engine funneled consumers to lower cost movies, and amazingly their customers preferred it!)


    One comment that I failed to address is the one about the inapplicability of P’s recommendation engine for international. At one time P didn't police international use, so many were using the service illegally. Since this was shut down many countries are eagerly waiting and hoping that they relaunch. This is evidence that the genome project is perfectly transferable to international.


    P has chosen instead to use the lower pure-play US rates to grow their US market share, in effect going after SiriusXM and FM which have even lower royalty rates, and why P is crying "foul" with IRFA. I think P knows very well that royalty relief is not in it for them but that there is a huge market to be gained from SiriusXM and FM who are currently getting a royalty free ride (relatively in SiriusXM's case).
    31 Mar 2013, 07:20 PM Reply Like
  • P is in AUS/NZ through a unique arrangement with local societies that is not extensible to other markets ( Its agreement with Sony/ATV is not a recorded music agreement, it’s a publishing agreement, and so it is not an example of a direct deal with the labels. And, this deal is bad for P because it means Sony/ATV broke ranks with collection societies in the US to force P to pay a 25% premium for publishing rights (


    I think you are misunderstanding why P’s recommendation engine methodology doesn’t easily scale internationally. It’s not that other markets aren’t interested in adaptive radio; it’s a resource/time challenge with respect to compiling human analysis-dependent musicological data on local repertoire in foreign languages and unique genres.
    31 Mar 2013, 11:01 PM Reply Like
  • "In Australia and New Zealand Pandora was able to deal directly with performing rights organizations that represent record labels."


    Did I get this wrong? I was under the impression this was agreed to by the labels, though at only 25% of revenues, maybe not. I will admit that I haven't found a lot of info on this one and amazingly the international expansion wasn't even mentioned in the 10-K, though CFO Herring did make this statement on the call:


    "The fourth objective is over the long-term, to expand internationally. In the second quarter of fiscal 2013, Pandora took an important step in expanding our service to Australia and New Zealand, and our user growth there has already outpaced user growth, population adjusted, in the U.S. at the same stage of its development."


    Regarding the recommendation engine, we'll just have to agree to disagree, having done a lot of traveling it is surprising how global music has become (Gangnam Style!). But also my wife loves all kinds of foreign music and has many foreign stations on Pandora including a Juana Molina station (at one time that station advertised to us in Spanish!), she has Chinese traditional, French cafe, Swedish polka, Brazilian, Peruvian, though she's certainly not the norm! (sorry girl, love you XO). You are correct, there are local genres and those stations will be added with each foreign expansion, but many of those stations already exist in the US market. Also, when new music is added, those will serve other foreign markets as well, assuming they are with indie labels that aren't tying Pandora's hands like the big labels are.

    "Pandora has curated genre stations of Australian- and New Zealand-specific music across a variety of genres including today's hits, singer-songwriter, roots and reggae dub, indigenous, classic pub rock and more."


    Just don't see the recommendation engine as any kind of hurdle to foreign expansion.


    Also Sony/ATV broke ranks and did get a higher royalty than pure-play non-sub, but it was much lower than they wanted prior to 2008 webcaster settlement, so progress! But yes, give and take.


    Good stuff, Digital, appreciate all your responses.
    1 Apr 2013, 01:01 AM Reply Like
  • The Billboard article you cite has essentially correct information. You just need the sentence before and after your quote to understand the context: “In other countries, a webcaster must negotiate with rights owners. In Australia and New Zealand Pandora was able to deal directly with performing rights organizations that represent record labels. Pandora doesn't expect to receive similar deals right away.” So the agreement in AUS/NZ was not a direct deal with the labels, it was a deal with the PROs there, which have the grant of rights needed to license Internet radio. It is a fairly unique situation, as the article points out. In the six years since Pandora was blocked ex-US, this is the only territory that they’ve been able to open up, so that speaks to the exceptional circumstance. Whatever P’s stated aspirations, the only path to global distribution is through major label deals, which is part of why AAPL is pursuing direct licensing.


    On scalability of P’s recommendation engine, yes they have branched out in terms of genres and languages, but the reality is that P has a database of only about 1M songs (, which is a fraction of the world’s musical repertoire. Apple, for example, has over 26M tracks in its iTunes database ( Scalability will always be a challenge for a metholodogy that relies on human musicological analysis, as one SA author recently noted (
    1 Apr 2013, 11:39 AM Reply Like
  • Good call, P down 5% today.


    Thanks again for a great debate, you've provided some insight that is very valuable to me. I'm standing by my long, as you said we will just have to wait and see.


    Btw, on my commute in I had ads for an upcoming concert and Copper Mtn ski resort (I live in Colorado), looks like their local ad push is beginning to bear fruit.
    1 Apr 2013, 12:24 PM Reply Like
  • Apple TV better offer something with a WOW factor as the Samsung smart TV looks like a winner and with South Korea subsidizing their manufacturing Apple faces a battle to be competitive.
    29 Mar 2013, 08:26 PM Reply Like
  • Apple should just get their current little black box to control all of my TV, a bit more content & throw in a Mini Mac that runs on iOS and I'd gladly shell out $999.00 to make my 799.99 dollar Vizio 50incher super awesome
    29 Mar 2013, 10:37 PM Reply Like
  • Have you ever used a Samsung 'Smart' TV? It's pretty much the opposite of Smart. I turned off all the 'smart' functionality and bought an Apple TV box.
    30 Mar 2013, 09:20 AM Reply Like
  • I tried a Google TV box on an HD TV just get something to surf the web on the TV if/when needed. What a mess.


    The main issue for me as always, is the multi-company integration of hardware, OS, and apps.
    31 Mar 2013, 10:41 AM Reply Like
  • I'm glad I didn't pay for the commercial-free Pandora for a one year subscription.


    iRadio (or whatever they will call it) will certainly move the stock.


    All this time I thought that the folks at Apple were just sitting there watching the company slip away :)


    Now about that cheaper iPhone....
    29 Mar 2013, 08:36 PM Reply Like
  • Not precluded, right? Just another output device for iEars
    30 Mar 2013, 12:03 AM Reply Like
  • And China Mobile on 4G. Big opportunity there. Could dwarf the US if they can get it right. $800 for an iPhone5 that is made there (so no shipping charges) with at least some national pride is too much for the bulk of that market.


    SamDroid java virtual machine is too slow.
    30 Mar 2013, 12:34 AM Reply Like
  • With Siri it should be seamless
    29 Mar 2013, 08:46 PM Reply Like
  • The way things are going in N. Korea, Samsung has more than Apple to worry about.


    Apple is going to replace the car radio.


    Siri will control everything by voice.
    29 Mar 2013, 09:24 PM Reply Like
  • You mean Sirius right?
    29 Mar 2013, 09:39 PM Reply Like
  • AAPL is still overpriced, I'm still staying with IBM.
    29 Mar 2013, 09:42 PM Reply Like
  • I see what you did there.
    29 Mar 2013, 09:47 PM Reply Like
  • apple, overpriced? huh?
    29 Mar 2013, 11:28 PM Reply Like
  • i-radio, what is that a pandora knockoff??
    30 Mar 2013, 12:03 AM Reply Like
  • 330,




    An actual stockpick vs a political response.




    For this is the first I have ever seen such a thing.


    Good luck on your trade.
    30 Mar 2013, 01:33 AM Reply Like
  • I really don't see how this is going to move the stock much. Are people going to buy more phones just for iradio?
    30 Mar 2013, 12:52 PM Reply Like
  • No anyone serious about music has Sirius
    30 Mar 2013, 01:06 PM Reply Like
  • Read my lips: market psychology
    30 Mar 2013, 02:27 PM Reply Like
  • xm comedy channel is pretty
    30 Mar 2013, 04:06 PM Reply Like
  • Maybe they'll sell more phones, maybe not. My guess is yes, but that really doesn't matter.


    There are hundreds of millions of people with iTunes accounts. iRadio provides an avenue for Apple to sell advertising - iAds - to those hundreds of millions of people. If you need to understand the revenue impact of advertising, look into Google a little more.


    For a lesser company this may not be a big deal - for Apple it's another piece in the ecosystem puzzle. Is Sirius better? Maybe, but Sirius doesn't come with iTunes, or iCloud, or Siri, etc.


    Not everybody loves the Apple approach to ecosystem design, and not everybody has to. Enough people do - and my bet is enough will continue to - that Apple's future is fairly secure.


    Throw in the new rumours about the curved glass iphone... good things are coming, it seems.
    30 Mar 2013, 04:58 PM Reply Like
  • iRadio may matter more to AAPL than is obvious at first glance.


    AAPL wrote the book on executing a digital platform against content, starting with music, and has benefited greatly from perfecting the convergence of media and tech. AAPL was trading for about 1% of its current value 10 years ago when it launched iTunes. Walter Isaacson’s biography of Steve Jobs is replete with examples of how music was crucial to Apple’s success over the last decade. It goes far beyond direct revenues from monetizing content—it’s about making a fully realized digital entertainment experience one of the platform’s core value propositions.


    AAPL owns the digital download business, so why do they need iRadio? Only about 40% of music consumers are predominantly lean-forward, playlist-creating music collectors. The lean-back consumers who constitute the majority of the market still enjoy music but they prefer a programmed experience. That’s why Pandora has scaled audience quickly, now constituting 8% of radio listening, and as much of the remaining traditional radio audience transitions to digital, AAPL wants to position itself to offer the best integration of adaptive radio into their ecosystem.


    If a music store could contribute so much value to the enterprise, who’s to say a radio service appealing to an even bigger audience won’t be big, too.
    30 Mar 2013, 05:46 PM Reply Like
  • iRadio? iThisIsNotInnovation is more like it. And they criticize Samsung for "copying" stuff? Will Apple now sue Sirius?
    30 Mar 2013, 01:45 PM Reply Like
  • Perhaps Apple will correct the digital sound shortcomings by incorporating "pure tone". Upgrade the quality and the content.
    30 Mar 2013, 02:47 PM Reply Like
  • Pandora is a decent service, but with its own issues. Hopefully Apple's service will overcome those issues, and offer some unique concepts. Otherwise, I will stick with Pandora.


    I would love to know how Pandora is 'choking profit making opportunities' ? Details, anyone?
    30 Mar 2013, 03:07 PM Reply Like
  • the tunein radio ap for ipad is pretty good...geesh, there are a million good aps, takes along time to scan thru them all, I would prefer aapl screen them out and develop one..............
    31 Mar 2013, 07:30 PM Reply Like
  • If it's also friendly to "Talk Radio", I'll buy it! ... and probably buy back those APPL shares I so foolishly sold a couple of weeks ago.
    1 Apr 2013, 07:41 AM Reply Like
  • yep 330
    1 Apr 2013, 07:57 AM Reply Like
  • Dose iRadio really act as a RADIO?
    That is does it bring in both AM and FM stations, including the full radio bands, not only FM music.


    1 Apr 2013, 08:32 AM Reply Like
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