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The Implications Of iTunes Radio That Everyone's Missed

This article is more than 10 years old.

Apple's iTunes (Image credit: AFP/Getty Images via @daylife)

At long last Apple has launched iTunes Radio and so far the reviews are pretty positive. It’s extremely easy to use and provides enough features that many potential users will not even think about venturing outside the iTunes ecosystem for another service. In fact, a study in June by GroupM Next determined that 34% of Internet radio users would switch from their current service on Apple’s brand name alone.

Do you think services like Pandora, Spotify, iHeart Radio and Slacker are worried? They should be, as a closer look at the study found that 46.4% of Pandora users, 47% of Spotify users, 46.1% of iHeart Radio users and 53.8% of Slacker users would leave their services for iTunes Radio when it became available.

But lets say that this study is seriously flawed and the attrition numbers aren’t anywhere near what was stated. The other services are still in for a world of hurt for a few reasons that seem to have been overlooked.

First, although iTunes Radio is only available in the United States at the moment, imagine what will happen when it goes global to the 119 countries that it currently services. Apple claims that it has 545 million users worldwide, each with a credit card on file. If they can can convert just 5% of that number, that’s 27 million or so. Then imagine that instead of the 34% of users that the GroupM Next study said would switch, it’s only 20%. Or 15% or 10%. It really doesn’t matter.

The problem for the other services is the number of lost potential users that are an absolute requirement for their growth. iTunes Radio attrits their user base, then blocks new potential users from registering.

When it comes to streaming music, the margins are extremely small and the only way any service can be successful is by reaching an economy of scale where it finally becomes profitable. Even if this is possible over time, most of the services are severely leveraged and don’t have time on their side. On the other hand, Apple has all the time in the world, which brings us to the second point.

Apple doesn’t need the money it could potentially make from iTunes Radio. The service could be a loss-leader for them (maybe it already is) and their CFO wouldn’t bat an eye. Any positive revenue can be considered gravy, because what it really wants is to keep its existing users inside its musical womb, then get as many outsiders as it can to sign up. The company can wait every other service out and it would have little impact on its bottom line while overhead and royalties take their toll on its competitors.

There are a lot of streaming services around the world, but be prepared for a big shake out period. The biggest losers will be radio-like services like Pandora (which iTunes Radio resembles), and although the selectable content services like Spotify have a different lure, they’ll suffer too. They all need to keep the warm bodies they have and continue to add more to stay afloat, but there’s now an 800 pound gorilla standing in the way. This time next year, the streaming music landscape will look very different.