Business Matters: If Big Radio Had Pandora's Royalty Rate, It Would Owe Billions
Business Matters: If Big Radio Had Pandora's Royalty Rate, It Would Owe Billions

Although it was barely mentioned during Apple's fiscal fourth quarter earnings call on Thursday, music is still playing important role in Apple's strategies.

Apple said it was "looking forward to launching" the redesigned iTunes, but gave no date for its launch. The company said it would launch the new, sleeker version in October when the redesign was first announced at last month's iPhone 5 launch event.

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The iTunes Store generated almost $2.1 billion in revenue across all categories -- music being just one of them -- in the quarter. That was up from $1.8 billion and $1.9 billion in the previous two quarters, respectively.

Also absent from the earnings call was any mention of Apple's upcoming Internet radio service. Bloomberg had reported Thursday afternoon that negotiations will be finalized later this year and Apple could launch its radio service in the first three months of 2013 -- news that sent Pandora's stock tumbling. It seems clear Apple does not intend to operate as a webcaster. As of Oct. 12, Apple had not filed a Notice of Use of Sound Recordings with the Library of Congress to take advantage of the Section 114 compulsory license.

In spite of the lack of music-focused information in the earnings release, there is plenty to take away here.

Apple earned a net income of $41.73 billion on revenue of $156.5 billion during its fiscal year. However, the company missed analysts' expectations on iPad sales but exceeded them on iPhone sales in the fiscal fourth quarter. The company's annual profit of $8.22 billion was short of the $8.3 billion expected by analysts surveyed by Bloomberg. Shares of Apple were down less than 0.1% in after-hours trading.

If you want a 30,000-foot overview, consider Apple's position in the world of networked, mobile computers and the role music plays.

On Tuesday, Microsoft debuted Xbox Music on its Xbox Live game consoles. Then on Thursday, Microsoft launched its Surface tablet -- which Apple CEO Tim Cook called on Thursday "a fairly confusing, compromised product" -- and the new Windows 8 operating system. Windows 8 will be a springboard for Xbox Music by allowing anybody with the operating system to access a free, ad-supported version of the service.

Microsoft undoubtedly faced an uphill challenge getting its new music service into mainstream popularity, but the combination of a freemium business model and integration with Windows 8 could be a potent marketing mixture. It also gives Microsoft an extra edge in the living room. Xbox Music is built into Xbox Live, the online platform that had 40 million free and paid users.

The living room is not Apple's strong suite. Cook said Apple TV "still has the hobby label" even though annual sales rose to more than five million from 2.8 million. But Apple is sure to make a major play for the living room in the future. In the meantime, it has the best lines of mobile phones, tablet computers and personal computers -- and its iCloud service to connects the dots.

But what if the future isn't just about connected devices? What if the future is also about location-based advertising? This is where iRadio -- the name people have given to Apple's yet-to-be-launched Internet radio service -- comes in. iRadio could bolster Apple's offer to brands by adding value to Passbook and Maps, two products that already combine brands/advertising and local, BTIG analyst Richard Greenfield writes.

"With Siri, Apple Maps and Passbook all pre-installed/built-into iOS6, it is not hard to imagine, Apple updating its software later this year which simply includes an iRadio application," Greenfield wrote earlier this month in a post that argued Internet radio is critical to Apple's local ad and commerce strategy.

Music will stop being quiet at Apple as soon as the remodeled iTunes is unveiled. Apple has just a few days to meet the October estimate the company set last month.

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