FORTUNE -- It's a Pandora-killer; it's going to take on Spotify; it will be streaming and almost certainly free.
1. Apple upended the music industry once, can it do it again?
Probably
not. The company is late to the streaming game and, besides, music --
once the core of iTunes (just look at the name!) and Apple's e-commerce
business are lagging and not nearly as lucrative as Apps, which are
going gangbusters. Horace Dediu, who has done more than any outsider to
dissect the iTunes economy, told me that once Apple (AAPL)
moved into this space it would be purely reactionary and "pragmatic.
They feel the economics are suddenly favorable, the infrastructure is
paid for [more on this in a moment], the bandwidth is cheaper. But I
don't really see this as an exciting thing. It's just flipping a
switch." That's exactly right. Millions of people already listen to
streaming music on their phones. Remember this, next week, during all
the hoopla: Apple isn't reinventing the wheel here, because it doesn't
have to. Which brings us to question two ...
2. Will it exist apart from iTunes?
That
is: Will iRadio be a standalone app? Let's hope so. iTunes is already
trying to be far too many things -- media player, store, library ... It
is a bulky mess, albeit a lucrative one. Dediu estimates the iTunes
ecosystem is a $17 billion a year business that costs $5 billion to run. Apple won't be abandoning this not-insignificant piece
of company infrastructure anytime soon, but the margins are far better
on apps, and video sales are growing far faster than music. iRadio may
be a good way to bump music sales, though seeing as ...
MORE: The next big upset in online music
3. If iRadio is its own app, how will it be integrated with iTunes?
Because you know it will be. The oft-repeated Steve Jobs adage that "people want to own their music"
is still mostly true (most of those people are oldish and getting
older, that is.) And, again, iTunes costs too much to run, makes too
much money, is too big a thing to ignore. What iTunes doesn't do well at
all -- and the reason Pandora (P)
and Spotify and YouTube are eating Apple's lunch a bit -- is music
discovery. And this is what all the kids are up to these days. Teens use YouTube more than any other music service -- it's
their MTV (because MTV isn't playing music). Consumer habits tend to
get locked in around 30, and Apple needs a better music discovery
service if iTunes is to have any longevity. So it will send people to
its store to buy songs, but how will that function? And will it function
well? When Apple has flirted with music discovery in the past, it has
not been very elegant. Also, remember, iTunes and everything around it,
including iRadio, is building an ecosystem to sell more devices, which
always have been and always will be the main event at Apple.
4. It's likely free, but will there be a paid version?
And
what will the pricing of that be? This may not seem crucial, but think
back to how 99 cents for a song became the industry standard. If
iRadio's streaming service is, say, $7 a month instead of $10, that
might just pull Spotify and Google (GOOG)
and Rdio and others into line. It wouldn't be too difficult to undercut
the competition in this way, seeing as Apple already spends so much on
streaming much bigger bandwidth items (movies, TV shows) on iTunes all
the time.
MORE: Google takes aim at Spotify and Pandora
5. The free version is advertising sponsored, but how lucrative will this be for Apple?
Ignoring
any of the associated costs with a paid version, or the money Apple
makes from users going from iRadio to iTunes to buy a song, the ad
dollars the company brings in will be very telling indeed. Sure, in the
grand scheme of Apple the numbers won't be high, but consider how
advertising has so dogged the mobile market.
Traditional internet ads (popups, banners, and the like) work terribly
on a small smartphone screen, and the money there has been minuscule
But audio ads work the same way as ads you hear on the radio -- only
better. Ads can be placed according to specific users' musical tastes
(fans of Nickleback, not surprisingly, have different tastes than fans
of Kendrik Lamaar). They're more valuable, because they are more
targeted. At least, that's the theory (and what Pandora has been saying for awhile now). Now, with a mega-player like Apple in the mix, we might see if that really is the case.
Wednesday, June 5, 2013
