The market for streaming media services is growing increasingly crowded, but if sources close to Apple are correct, the 800-pound gorilla is about to enter the room.
According to a report in The Wall Street Journal, anonymous insiders claim the iPhone maker is in talks with record labels about licensing music for an online custom radio service, similar to Pandora – provided it can negotiate the terms it demands.
That last bit could be a sticky point. Under the terms of a 2009 agreement, Pandora and other web broadcasters must pay out up to 25 per cent of their revenues to copyright holders via SoundExchange, a royalty-collection organization affiliated with the Recording Industry Ass. of America.
The arrangement has been hard on Pandora, which despite its popularity has never turned a profit.
"Given the royalty structures in effect with respect to the public performance of sound recordings in the United States, our content acquisition costs increase with each additional listener hour, regardless of whether we are able to generate more revenue," Pandora wrote in its most recent filing with the US Securities and Exchange Commission.
Sources say that's just the sort of situation Apple would like to avoid, and that the fruity firm is trying to avoid SoundExchange's strict terms by cutting its own deals with individual record labels.
If successful, Apple will enter the ring against a growing pack of companies seeking to provide music through internet streaming, rather than downloads. Some have deep pockets; in addition to pure internet radio players like Pandora and Spotify, Amazon and Google both now offer streaming media services.
But none of the other players can match Apple's thriving media ecosystem. In June, Cupertino reported that there were more than 400 million accounts in the iTunes Store, all of them backed by credit cards.
With numbers like those, it's very possible that Apple may be able to come away from its negotiations with licensing terms more to its liking – especially considering that Steve Jobs and company are widely credited with having transformed the entire music industry once already.
It's not clear whether Apple plans to offer a subscription service or what it might cost for consumers, but the company is said to be planning to serve ads to listeners via its iAd platform, which also provides ads for Pandora.
Still, it's early days yet. According to the Journal's sources, Apple has only been negotiating with the record labels for about two weeks, and the talks could still fail. If they are successful, however, sources say Apple could launch its new service as soon as a few months from now.
That thought had Pandora investors singing a sad tune; its stock shed nearly 17 per cent after Friday's Journal article, to close at $10.47. ®