Apple's iTunes Radio, which arrived this week as part of the new iOS 7 software for iPhones and iPads, is almost exactly like Pandora. The classic-heavy-metal channels for each service play plenty of Judas Priest and AC/DC, and each track includes a button for users to endorse or reject. But there's one key difference: At the top of every song "now playing," Apple includes a small, bright-red box containing a price and a link to the iTunes Store. "Every single click that a consumer has to make significantly decreases the chance they'll buy something," says Josh Grier, attorney for Elvis Costello, Wilco, Ryan Adams and the TuneCore digital-music service for artists. "With iTunes Radio, the ability to buy something you just listened to is extremely simple. Click once and you got it."
Pandora's chief executive, earlier this year, characterized Apple's new rival service -- accurately -- as having "expanded and extended its radio feature to match what other services have offered for years." Pandora's built-in advantage in competition with iTunes Radio is a loyal user base. The company has 200 million registered users, and recently redesigned its iPad app for the first time since 2010. And, flipping between Pandora and iTunes Radio for a prolonged period, it's obvious that the older service goes deeper into individual genres. One example of many: iTunes Radio played Baauer's "Harlem Shake" second on its dubstep channel while Pandora went with Skrillex and Bassnectar.
But Apple has several advantages in Internet radio, which also includes smaller competitors such as Slacker Radio and Live365. While it's too early to estimate the number of iRadio customers, iTunes has 575 million. And Apple has reportedly been hiring people to beef up its internal programming department, unlike Pandora, which uses an algorithm to pick songs based on listeners' preferences. Plus, Apple operates in 119 countries, compared to Pandora, which is only in the U.S., New Zealand and Australia. "If you're an artist, who knows if your label's going to put you out in that country?" says Allen Kovac, manager of Motley Crue, Five Finger Death Punch and Blondie. "Very few artists get put out globally. So when you're on a playlist, it elevates you."
Record-label executives have predicted for years that streaming and Internet-radio services represent the future of the business after the long, slow decline of CD sales. But online download sales are down -- 3 percent for tracks and 6 percent for albums so far this year, according to Nielsen SoundScan. So far, according to numerous artists, streaming royalties have yet to boost their royalty payments in a meaningful way. But iTunes Radio pays a bit better than Pandora, music-business sources say: roughly 13 to 14 cents per 100 plays compared to around 12 cents. "There's been a lot of complaints that artists aren't receiving enough compensation from Internet deals," says Jay Cooper, attorney for Katy Perry, Sheryl Crow, James Taylor and others. "But the more competition there is in that market, the better off artists are, in all kinds of ways."