Apple is gearing up to sell audio ads on a music-streaming service it intends to unveil at its developers conference next week, sources have told Reuters, going up against Google and US-based Pandora Media in the increasingly competitive market for mobile music.
The iPhone maker, which has been working to put together a streaming music service for the past year, has contacted some of its bigger
advertisers but hasn't started selling the service extensively yet, one of the people said.
The music service, dubbed "iRadio" by the tech industry and media, is expected to closely resemble Pandora Music in its monetisation strategy, featuring audio and banner ads sold through Apple's iAd mobile network, the sources said.
That would put it in direct competition with popular existing services such as Spotify and publicly-listed Pandora, which has about 70 million active listeners.
The service is expected to launch later this year and will also have ads currently sold by the iAd division, they said. Apple has made selling ads for the new music streaming service a focus for its iAd unit, which will continue to sell regular mobile ads. Selling big-brand campaigns to advertisers would be a key priority for the unit, the people said.
But there are questions about the ongoing cost to Apple of such a service. The rising cost of licensing has forced Pandora, whose revenue comes mainly from advertisers, to introduce a cap of 40 hours of free listening on mobile devices. A $3.99 subscription is required to venture beyond that limit. Spotify too capped free listening per month last year.
The other deep-pocketed player that started offering music-streaming is Google with its "Google Play Music All Access" music streaming service, which allows unlimited listening for $9.99 a month – the same price as Spotify. It announced its service last month at its own developer conference, ahead of Apple.
Shares in Pandora have plunged 17% this week as reports circulated that Apple was close to announcing its rival service.
When finally launched, Apple will become the latest entrant to the music streaming arena – one that other tech giants, from Amazon to Facebook have also considered joining.
Wall Street analysts and technology blogs speculate that "iRadio" will, like Pandora, Spotify and CBS-owned Last.fm, operate much like an online radio station that streams a selection of music based on users' preferences.
Mobile device makers see a viable music streaming service as crucial to ensuring users remain loyal to their mobile products. About 48% of smartphone users listen to music on their device, making it the fourth most popular media-related activity after social networking, games and news, according to a ComScore survey of mobile behaviour released in February.
Holding onto users is key to Apple, which gets the lions' share of its revenue from the sale of devices rather than the sale of digital content such as songs and TV shows.
The ad-supported music service from Apple, which pioneered and now dominates music purchases through iTunes, is expected to be free to users. The other business model – adopted by rivals Google – is an ad-free subscription model where consumers pay a flat fee for listening time. Sweden's Spotify offers a mixed model, with different payment tiers: free, limited listening with ads, or paid-for ad-free levels which can be listened to on computers and then mobiles.
A spokesman for Apple declined to comment about audio ads for the music streaming service, which was first reported by industry publication AdvertisingAge.
To ensure the service debuts with ample content, Apple has been hurrying to ink deals with the music industry. It already has agreements with two of the three big music companies, Warner Music Group and Universal Music Group, but remains in talks over music streaming rights with Sony Music Entertainment and its separate publishing arm, Sony/ATV.
Streaming music remains a nascent market, dwarfed by music sales via outlets such as iTunes, but one that is attracting investment.
• Apple will start a programme this month to allow US users to trade their older iPhones for the newest model, Bloomberg says, marking a first for the company as it prepares to introduce a new version of the smartphone.
It has teamed up with Brightstar Corp, a mobile phone distributor that runs similar trade-in programs for carriers like AT&T Inc and T-Mobile, to handle exchanges, Bloomberg reported on Thursday. Brightstar was behind the purchase of 1m BlackBerry handsets earlier this year in order to act as a middleman for the US carriers and retailers and the Canadian handset company.
Apple and Brightstar didn't return calls for comment.
New iPhones with no mobile contract are priced starting at $649, depending on storage size. Demand is typically strong but investors worry that, as the US market becomes increasingly saturated, smartphone purchases will slow sharply. ComScore data suggests that 138 million US adults – about 59% of the mobile-using population – have a smartphone, of whom about 54 million have an iPhone, and 72 million have a smartphone running Google's Android software.
A trade-in programme can help bolster demand for expensive new models, especially as arch-rival Samsung steps up an aggressive push to sell its own devices in the US market. Samsung is the second-biggest smartphone provider in the US, with 30m users according to the ComScore data. Overall, it is the single largest provider of all mobile phones in the US.
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