Press speculation says Apple's forthcoming iTunes Radio is bad for industry leader Pandora, but they're wrong. In spite of Pandora's difficulties turning a profit, they are firmly entrenched as the market leader with 8% of all radio listening. iRadio is a frontal attack on FM radio and will accelerate the deterioration in their business and pressure the $10/month services to offer a free tier.
default free radio experience built into iPhone's and iPads will quickly
attract millions. The press will cover iRadio exhaustively plus the power of
Apple to pre-install upcoming iOS 7 this fall will lead to millions listening
to iRadio quickly after launch. 60-70% of online radio listening already
originates from a smartphone or tablet and that will accelerate with Apple's
Yet iTunes Radio won't cannibalize Pandora. Pandora has loyal users, tremendous awareness and a satisfying service. 70 million users a month are already in the habit of clicking the P logo to hear tune and they won't change even for a slightly richer service. In addition Pandora is built into hundreds of consumer electronic devices and does not rely on any special Apple accommodations to get their app onto devices so that will be unaffected.
Today only 10% of radio listening comes via net services. Thus 90% still use AM/FM. 9 out of 10 people don't yet realize the huge benefit that net radio offers compared to classic radio, but the press attention around iRadio will help educate them. They'll learn that net radio offers virtually unlimited station choices, ability to skip songs they don't like and ultimately puts them in control of the audio bouncing off their ears instead of the broadcasters.
FM radio will free the brunt of iRadio's growth and it will only accelerate the deterioration in their business. Radio is in the midst of a classic analog to digital migration. (See newspaper, magazines, mail, etc) It is unstoppable because it gives the consumer so much more control and choices. There's no question that it will change from 10/90 (analog/digital) to 90/10 because FM cannot compete with the benefits of internet delivered music. A new feature in the new iOS which mirrors your iPhone display on a car's dashboard could have a bigger impact on driving net radio adoption than a new copycat service from Apple because it makes your smartphone a better car radio.
Others who will fall victim to iRadio's success are music services with no free tier. Free is the most powerful marketing strategy of all time and that's especially true with music. Apple's service improves on the free experience by adding even more user control than Pandora. The hundreds of millions who have yet to experience net radio will be lured to their free service or others and never experience those which require a credit card: such as SiriusXM, Rdio, Rhapsody, Google All Access, Sony Music Unlimited, and Deezer. The credit card is an enormous barrier to explore. Some young people don't have a credit card so they'll be forced to the free services and be oblivious to the paid options.
If you can't get a shopper into your store there's zero chance of them making a purchase. There's unquestionably value in the $10/month services, but it will be more challenging for those companies to attract initial interest since each requires a credit card. Some number of those already paying $120/year for music will reassess that financial commitment in the face of free alternatives. There's still value in those offerings, but those providers will have to work hard to keep delivering value.
iTunes Radio's success as well as other net companies will come at the expense of the expense of AM/FM station operators whose customers will are abandoning their dumb car radios in place of the smartphone. Those that don't offer a compelling free radio experience online will lose out. - Michael Robertson