ITunes Radio is coming soon. The Internet radio service will not only give Apple, the world leader in music sales, a competitor to Pandora and iHeartRadio, but also an opportunity to boost its underperforming advertising unit, iAd.
Apple has been lining up advertisers for a September launch in the United States, according to sources familiar with its plans. These advertisers include McDonald’s, Nissan, Pepsi and Procter & Gamble. Sources also confirm that Apple plans to run around one advert every 15 minutes-much less than traditional radio, but seen as a good way to boost the new service’s popularity.
From the music industry’s perspective, iTunes Radio might look like an assault on Pandora, but the service’s impact goes much deeper. Apple will compete for Pandora’s customers rather than their advertisers. Pandora is effectively a radio company that wants advertising dollars earmarked for broadcast radio. It has filled its large sales teams with people from the broadcast radio business who can tap into local radio ad markets around the country.
ITunes Radio’s greater aims are Google and Facebook. Through iAd, iTunes Radio will target the same mobile advertising budgets dominated by Google and Facebook. According to eMarketer, Google will have a 56% share of the $15.8 billion in global mobile ad revenue this year, followed by Facebook with 12.9%, Pandora with 2.5% and Twitter with 2%.
Apple has dominated music downloads since iTunes launched in 2003. But iTunes Radio takes Apple outside of its comfort zone and represents a shift from selling goods to selling ads. This creates something of a problem. For iTunes Radio to work, iAd needs to work.
Apple’s mobile advertising network has lagged behind Google since its launch in 2010. So last year Apple hired Adobe’s Todd Teresi to run its iAd business. Teresi and Eddy Cue, formerly head of iTunes and now senior VP of Internet software and services, are reportedly leading iTunes Radio.
IAd’s inability to catch on with advertisers is evident from changes made to its terms. Apple lowered the minimum from $1 million in 2010 to $100,000 two years later. It sweetened the deal for developers, raising their cut of ad revenue from 60% to 70%. And it simplified a two-step fee — one fee for impressions, another for clicks — to a straight cost-per-thousand rate that’s more in line with industry standards.
Mobile advertising is too lucrative for Apple to cede control to Google and Facebook. EMarketer forecasts U.S. mobile advertising will increase from $8.5 billion this year to $31.3 billion in 2017 as its share of total digital advertising rises from 20.1% this year to 50.7% in 2017. Again, that’s just in the United States.
ITunes Radio gives Apple an entry into the explosively popular Internet radio market and a potential challenger to Pandora in the States. The new service also gives Apple an opportunity to improve its advertising business. For Apple to challenge Google and Facebook in mobile advertising leadership will require a successful iTunes Radio.
For the music business, in addition to being paid per song stream, major labels and publishers are set to share in iTunes Radio’s ad revenue under deals reached with Apple ahead of launch. They, too, will also want a successful iTunes Radio.