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iTunes Radio exits free, creeps into Apple Music as the Internet radio landscape is re-shaped

itunes radio canvasiTunes Radio, a late-arriving Internet radio initiative, once widely appraised as a “Pandora killer,” will end as a free, ad-supported service on January 29. On that date the lean-back listening service will become part of Apple Music’s monthly music subscription offering.

Apple made the announcement to Apple Music subscribers on Friday.

Rise and Fall

iTunes Radio was launched in September, 2013, accompanied by earth-shaking pronouncements of inevitable marketplace triumph thanks to Apple’s immense distribution power in smartphones. (That’s the same rationale upon which soaring Apple Music predictions are based.) The “Pandora killer” phrase was one of the most overused — and, it turned out, wrong — memes of the fourth quarter in 2013.

The announcement was presaged by disruption of iAd, the Apple division which sold mobile advertisements, where the sales team was disbanded. iAd will continue to exist as an automated transaction platform. But dismissing the sales team, and discontinuing iTunes Radio as an ad-supported free listening service, signal Apple’s exit from the streaming audio advertising marketplace. It also reinforces Apple’s commitment to its music subscription plan which was launched June 30 and which reportedly has attracted 10-million paying and trial subscribers.

A New Landscape Emerges

Apple never broke out listener numbers for its Internet radio venture, but regardless of its size, the exit of iTunes Radio contributes to the re-shaping of the streaming music industry. Apple Music, now a direct competitor with Spotify’s hybrid radio-subscription service, will shift to direct product competition with Rhapsody’s and Deezer’s subscription-only services, even as it strives to take market share from Spotify. Apple Music’s only free-listening outlet after January 29 will be Beats 1, a live-radio experience hosted by DJs that is absent of any streaming interactivity or user personalization.

A 2016 gets underway, Apple’s product maneuver is simultaneous with a potential thinning-out of the small webcaster landscape after the Webcaster Settlement Act of 2009 expired on January 1. As the venerable Live365 station aggregator faces possible extinction, some independent small stations have unplugged, and a February 1 deadline for remaining stations might see others leave the market, Internet radio is arguably becoming less exploratory, adventurous, and entrepreneurial. Ad-supported online radio has certainly become less important to Apple.

A Few Big Players

The streaming audio advertising market in the U.S. is consolidating around a few major players.

In November, highly-regarded but not-much-used online radio service Rdio went out of business, its assets acquired by Pandora. Later this year, Pandora will leverage those acquired assets to morph its product into something resembling the service model of Spotify, daringly shifting from market-leader of non-interactive Internet radio to the hybrid radio-subscription model that Apple is abandoning.

Pandora has an impressive audience footprint of just under 80-million monthly users (a number that will be updated in early February when the company releases Q4 2015 earnings). That share of the market has remained mostly level for several quarters. Spotify, meanwhile, reportedly grew its audience aggressively in Q4 and might soon update its 75-million reported monthly users (20-million of whom subscribe to the monthly Premium plan). As Spotify’s global influence grows, the company has emphasized the audio advertising side of the business with new technology and initiatives, including developing its own programmatic network.

Don’t forget iHeartRadio, the third-most recognized streaming music brand in the U.S. with 75-million registered users. While generally known as a streaming platform for terrestrial radio, iHeart also bundles in a Pandora-like personalized listening feature the dynamically streams artist-seeded stations.

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Brad Hill

3 Comments

  1. Careful not to position apples and oranges and pears as apples (sorry, no iTunes pun intended). Pandora’s nearly 80 million monthly users are mainly USA listeners. Spotify’s 75-million-ish monthly users are mainly outside of the USA. And the number quoted (75 million) for iHeartRadio’s registered users is not the same as representing that they have 75 million “monthly listeners.”

    For the record, I have “no horse in the race,” but with 35+ years in radio advertising and research, I’m highly sensitive to the need for accurate and truthful audience measurement and reporting.

  2. Thanks Mark — you are correct on all points. I suspect Spotify will soon release a hefty increase in global audience. Later this year it will be interesting to see what happens to Pandora’s footprint as it expands both its service model and its international reach. iHeart claims 90-million unique digital users — that might include listeners outside the app, such as radio station websites, etc..

  3. Apple has demonstrated many times that they don’t do well at ad-supported services. The ads I heard when trying their radio channels were un-targetted, completely un-memorable, and I heard the same ad over and over. Pandora does a good job with ads, that’s their true value: getting a variety of appropriate ads to the listener.

    Apple does however excel at getting their users to subscribe to things. So this move comes as no surprise to me.

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