Talking tech since 2003

Online music services like Pandora and Spotify had better watch out. According to a report from The Verge, Apple is close to reaching deals with major record labels for its new online radio service. The report claims that a deal between Apple and Universal  on royalties for the Apple radio product could come very soon, and that one between Apple and Warner Music isn’t far off, either.

Online stations in iTunes could soon be overshadowed by a Pandora or Spotify-type service.
Online radio stations in iTunes could soon look a lot more like Pandora or Spotify.

Apple had originally wanted streaming royalty rates that were far below those paid by competitors, but it appears now that the company will pay a price similar to personalized radio service Pandora, which pays around 12 cents per 100 songs streamed.

While Pandora recently passed 200 million registered users and Spotify has over 20 million users (approximately 5 million that pay), Apple has the built-in iTunes advantage. Apple’s online entertainment store surpassed 400 million active accounts last September, and many of those accounts have credit cards on file. With less steps in between discovering new music and buying it, Apple can hopefully drive more sales of digital singles and albums.

There is no consensus yet on how an Apple radio service might operate. Could it provide personalized radio like Pandora? Will it offer a large library of songs that can be streamed on-demand, similar to Spotify? Or will it do both? Also up in the air is whether or not Apple will charge a monthly subscription for the service or allow it to function as a sort of loss leader for its digital music sales.

Whatever the case, Apple seems to have a better shot at profiting off of online radio than its potential competitors in the space. Pandora posted a $14.6 million loss for Q4 2012. In its most recent confirmed financials from 2011, Spotify reported a net loss of $59 million.

We’ll be sure to stay on top of this developing story and let you know if we hear any more news about the Apple radio product.

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