How Apple Will Inadvertently Kill Pandora: The Genius of iTunes Genius & iTunes Match

iTunes Genius is the Pandora Killer

I’ve been thinking a lot about the rumors that Apple is going to create a Pandora-like streaming radio experience. I don’t think that’s the whole story. It obviously can’t be.

Apple left an umbrella for streaming services, which explains why the Spotify’s, Pandora’s, iHeartRadio’s of the world have been able to creep in on Apple’s turf — there’s a gap. We all see it. Apple’s also maintained a pretty hardline that ownership (.99-cent download) is more important to them than access (subscription plans). It’s important to the music industry, too, as something like 80% of all music sold is sold by iTunes. You can’t just replace download dollars (ok, .99-cents) for streaming tenths of a penny and expect everyone to be ok with it.

So, it makes a lot sense for Apple to narrow this gap and strategically defend its position as the top seller of music, but also rejuvenate their huge install base of 400 million+ installs by creating a hybrid model. I see the standard iTunes Store experience (ownership) more clearly and seamlessly paired-up with a beefier iTunes Match (access to owned content anywhere) — essentially doubling-down on the iTunes Match promise that you can “access your music from all your devices and listen to your entire library, wherever you are.” Coupled with how much iTunes Genius has learned over the years (i.e. listening habits, including time of day, type of music, day of the week, type of device, etc.) and iCloud, you can see a clear convergence happening.

Additionally, we should expect to see a programmed, streaming radio model that uses your library as a guide, but relies on the millions of iTunes Genius data points of user listening history to dictate the music mix (i.e. Genius Mixes on crack). I’ll contend that iTunes Genius is more similar to Songza, which is why I don’t think Pandora is the correct analog. Songza makes more sense from their themed, bite-sized playlists that are easy to consume and navigate. The obvious assumption is that Apple would just create a streaming radio experience and slap their lagging iAds product on it and call it a day. That’s probably going to happen to an extent, but that can’t be the full story either.

I have a hunch that Apple will use and reward users for having a vast library they own (i.e. relying heavily on the music that’s been previously paid for) and then fill in the blanks in the streaming radio programming from the 28 million+ songs in the iTunes library. I believe that the rewards for having a large library of owned music will be realized through less restrictions in the streaming radio space (i.e. no caps on skips or number of artist plays per hour, or amount of “free” listening per month per user, etc.). It’s important to remember that iTunes Match is like renting your own music. Every time a consumer re-downloads or faux-streams their own music, the copyright holder is getting paid. I can’t underscore that enough: for $25 a year you’re putting money into the music industry that was previously lost in exchange for access to your own music. Jeff Price, president of TuneCore, sheds some light on the economics by saying, “Apple keeps 30% of iTunes Match revenues for itself — the same percentage the company keeps from the iTunes and App Stores. The remaining 70% is divided, with 88% going to record labels and 12% going to songwriters. The royalties are split amongst artists based on ‘how many times someone accesses your song’ via iTunes Match and it doesn’t matter if a song is matched or uploaded — the royalty is paid either way.”

Think about it: you’re paying to access music either way. It’s either a subsidized version of your music library paired with the iTunes library of 28 million songs ($25/year + whatever you buy + ad revenue), or it’s Pandora’s 800,000 songs ($36/year -or- just ad revenue) or Spotify’s 15 million songs ($120/year -or- just ad revenue) you pay to access. But in either scenario, the music industry is going to make more money from Apple. And, by Apple keeping people in their ecosystem longer and rewarding them for owning music in the form of subsidized streaming radio, they’re able to sell more music and put even more money in the pockets of the music industry — something none of the other streaming competitors can provide sans potentially Amazon and Google, which we haven’t even talked about. In a nutshell, the pitch is that for something like $25 a year, you can get all your music anywhere at anytime on any device — oh, and one more thing — you can also listen to exceptionally awesome iTunes Genius-powered streaming radio, too. I’d buy.

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