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iTunes Radio Prepares to 'Pounce' As Streaming 'Arms Race' Heats Up

The industry watches closely as Apple preps new service for September launch

Eddy Cue, Apple's Senior Vice President of Internet Software and Services, discusses iTunes Radio in San Francisco.
Josh Edelson/AFP/Getty Images
August 27, 2013 12:45 PM ET

As Apple prepares iTunes Radio for a September launch, with top brands such as Pepsi, McDonald's and Nissan as advertisers, the long-suffering record industry is hoping for a new kind of boom. Competition for streaming-music customers is intensifying — Pandora announced last week it would no longer cap mobile listener hours as of September 1st, and Beats by Dre's Daisy service could arrive as soon as October. All of these developments are likely to hasten the industry's transformation from selling downloads to streaming songs.

Look Back at How Steve Jobs Turned the Music Biz Upside Down

"An arms race is afoot," says Tom Corson, president and chief operating officer of RCA Records, home of Justin Timberlake, Ke$ha and Pink, referring to the growth of music-streaming services from YouTube to Spotify. "Apple had a very nice business selling things, and it worked great for us, and it was growing and growing. [Apple] was waiting for a disruption to come into the market, and now they're prepared and ready to pounce."

Apple has, as usual, declined to release concrete details about iTunes Radio — the company announced in June it would be part of its fall iOS 7 software release, for iPhone, iPad and iTouch, and it would unite music and advertising. When Apple's top Internet executive, Eddy Cue, revealed iTunes Radio at the company's WWDC event, his description suggested it would be much like Pandora. One key difference: It will not just expose users to ads but steer them to iTunes "buy" buttons — which makes record executives happy.

"The 'Buy' button on Apple Radio is very prominent, so when you hear something and you like it, boom, you press the button," says Jim Urie, president of distribution for Universal Music, the world's biggest record label. "I think it's actually going to be a bright red button! Everybody agrees it's going to be good for the business."

Pandora executives have been careful since Apple's WWDC announcement not to seem overly cutthroat with regard to iTunes Radio, but its chief executive, Joe Kennedy, told AllThingsD, "We've now been around for eight years. We've seen competitors large and small enter the market and, in some cases, exit the market. I've never seen an analysis that identifies an effect from any competitor. . .we don’t see the picture changing."

Still, Pandora's listener-hours have decreased in recent months — mostly due to the 40-hour cap, instituted earlier this year. Still, new services, from increasingly powerful music players such as Spotify to apps, have emerged as streaming rivals. "Competition's definitely increased for Pandora. There's more apps that don't have anything to do with music that are pulling people away from listening to music on their mobile devices," says Alex Luke, a former EMI digital executive who is working on a music startup. "As a consumer with an iPhone and an iPad and a laptop, I find more things tugging at me on all sides. The market's changed dramatically from even 12 or 18 months ago."

Many at record labels view streaming, if not as the future of the entire business, then an important revenue boost after a long period of slumping sales. Download sales have dropped in 2013 after years of growth — about 6 percent for albums and 3 percent for tracks, according to Nielsen SoundScan. Many experts say the proliferation of free streaming services allow consumers to spend money on music without buying it. But Pandora points to numbers from the NPD Group, which reported earlier this year that 41 percent of Pandora and other free-music-streaming consumers say owning music remains important to them.

"The move towards [free] access to music is so simple and ubiquitous that it's having a major impact on piracy," says Syd Schwartz, a former major-label digital-music executive who is now a consultant with Linchpin Digital. "But I don't know that I'd be whistling 'Happy Days Are Here Again' for the major [labels] anytime soon."

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