Will iTunes Radio Spark Digital Music Shakeout?

Industry observers tackle Apple's impact

There appeared to be an overabundance of digital music streaming services before Apple’s iTunes Radio became a reality last week, so it stands to reason that a shakeout—if it wasn’t already on the horizon—could now be only a matter of time.

Well-positioned players such as Pandora, Spotify and Clear Channel-owned iHeartRadio are probably going to be able to absorb hits from the new Apple competition, said Paul Verna, eMarketer analyst, though names like Rhapsody, Rdio, Slacker, Mog and others could be in trouble during the coming months.

"ITunes Radio is going to disrupt the space," Verna explained. "People's phones are their MP3 players these days."

Indeed, since consumers are becoming rapidly more mobile with their digital consumption, Apple could be in the cat bird's seat with the iPhone. Per ABI Research, 294 million consumers will utilize Apple’s mobile iOS system—just updated last week with iTunes Radio packaged in—by year’s end. And to Verna’s point, a big chunk of those users are already listening to a digital streaming service on their iPhones, giving Apple marketers device-level opportunities to push iTunes Radio that competitors simply don’t have at their disposable. To compare, 13-year-old Pandora has some 200 million users, leading the pack, while younger Spotify, on the other hand, has more than 24 million.

Marketers for the Rdios and Slackers of the world suggest that Apple will create more awareness around streaming music—benefitting players on the scene from end to end.

"Across streaming services, you are seeing a tremendous amount of momentum," said Carter Brokaw, chief revenue officer for Slacker. "And I think Apple's announcement has contributed to it. It's brought a lot more notoriety to the idea of streaming radio being a very big and viable business."

Verna from eMarketer added, "An all-boats-rising scenario is possible. At the same time, it could be that Apple's huge presence will take business away from others."

Mark Simpson, president of digital marketing firm Maxymiser, was blunt when predicting iTunes Radio’s impact.

"It cannot fail to affect the space just because of audience," he said. "Any radio station is about audience. iTunes has a massive user base. Even if only 5 or 10 percent sign up, they are going to affect the on-demand radio stations that exist right now. I think we'll see a shrinkage in the number of players, while iTunes Radio grows into a significant player quite quickly."

Apple can also put big advertising dollars behind iTunes Radio, Simpson noted.

"It is obviously in their best interest to make it be as big as they can," he said. "A TV commercial might not be totally dedicated to iTunes Radio, but the service might be part of a larger Apple ad that highlights various products. And through their other products and services—they can promote the hell out of this if they want to."

Yet the big winners could be brands that purchase digital radio platforms' audio and display ads, said Lauren Russo, svp, director audio and promotions at media buyer Horizon Media.

"Greater competition in the space will lead to better pricing and/or value," she said. "But the digital audio platforms with the best content, user experience and scale will prevail."

While iTunes Radio may reshape the digital streaming business, the Apple product is far from a no-brainer at this point, other observers say. For instance, James McQuivey, principal analyst at Forrester Research, doesn't expect iTunes Radio to race past Pandora or Spotify to the No. 1 position.

"Remember, even on its own devices, Amazon Kindle books are the most read eBooks despite Apple's attempt to come in a change that business," he said. "That said, music is Apple's original customer relationship, and it does a decent job of it so the service should be at least modestly successful, if not dominant."

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