Business Matters: Behind Apple iTunes Radio’s Launch Strategy

Don't expect a soft launch for iTunes Radio. Apple has lined up blue chip advertisers for its upcoming launch next month of iTunes Radio, according to an Ad Age report. McDonald’s, Nissan, Pepsi and Procter & Gamble were named as advertising partners already on board. In addition, the launch appears to be timed for maximum exposure.

The report, which claimed the launch is set for next month, has numerous details that suggest Apple will roll out a fully conceived service rather than something half-baked that will improve over time. Minimum ad buys are said to be around $1 million. Apple's iAds mobile advertising network had similarly high minimum buys that were drastically lowered over time.

Apple's iTunes Radio to Launch Next Month with Full Slate of Blue-Chip Sponsors

There are a couple reasons why Apple can demand high minimum buys from advertisers for iTunes Radio. First, Pandora, iHeartRadio and other Internet radio services have already confirmed the viability of the format. Apple is not creating a new product unfamiliar to advertisers. Second, Apple can offer a range of ad types -- audio, video and "slate" ads that appear in front of any app or web browser -- that improve on the common display ad. Apple will also give advertisers the opportunity to sponsor branded stations. 

Timing is another factor. The iTunes Radio launch appears to be timed to coincide with the arrival of two new iPhone models. Reports Tuesday said Apple has asked its assembler to begin shipping new high-end and low-end iPhones early next month. That jibes with AdAge's claim that iTunes Radio will launch sometime next month. iTunes Radio would certainly generate strong consumer and media interest if launched alone, but launching in tandem with new iPhone models will amplify the message.

These details help answer an important question about the service: is iTunes Radio a profit center or a loss leader? It will take many years to turn a profit -- look at Pandora -- but Apple is clearly not treating iTunes Radio as a necessary expense to keep consumers within the Apple ecosystem. It certainly has enough resources simply to operate iTunes Radio at a loss while taking market share. But Apple is treating Internet radio as an extension of its iAds business that generates revenue while improving its customers' experiences.

The new details don't help answer a few other questions, however. How will iTunes Radio help Apple sell more downloads? It's known that iTunes Radio will have an embedded buy button to facilitate purchases and will stream promotional tracks. But the service's ability to induce purchases really can't be known until it launches.

Perhaps the most important question is if iTunes Radio is a steppingstone or an end game. Put another way, will Apple use iTunes Radio to inform the development of a subscription service? As more and more consumer listening shifts to on-demand streaming, people are searching for signs that Apple will launch a competitor to Spotify, Rhapsody, Rdio, Beats Music and Google Play Music All Access. Steve Jobs was known to dislike subscription services. To date, Apple has shown only slight interest -- CEO Tim Cook reportedly met with Beats CEO Jimmy Iovine in March.

We know two things for sure based on the product about to launch. First, Apple doesn't want to miss an opportunity to push Internet radio further into the mainstream. Second, Apple does not believe the mainstream consumer is ready for music subscription services.