iRadio: tracking Apple's attempt to build the iTunes of streaming music

The service is free, and iTunes Match subscribers don't have to see any ads. The radio feature will also simplify the buying process: listeners can click a nearby "buy" button as a song plays or purchase it later from their listening history.

For the past two years, record labels, music retailers, and artists carefully tracked music sales. After a decade of massive sales declines, the downward spiral appeared to bottom out in 2011 and 2012 and the hope was that the darkest period in the sector's history was over.

Sony has reportedly signed a deal with Apple for the iRadio service, bringing the last of the three major record labels on board days before WWDC. AllThingsD reported the news this morning, saying that Apple was now set to announce the news of iRadio on Monday; previous reports have said it will launch in the months after WWDC. Apple reached an agreement with Universal Music Group in May, and it brought Warner Music on board just a few days ago, but Sony has remained a holdout until now, allegedly because it wanted Apple to pay more than iRadio competitor Pandora.

Apple has had a long road to its subscription-based streaming music service, which is said to be supported by ads from a revamped iAd service. It's said to have clashed with music labels over terms, and some have apparently expressed concerns about Apple's ability to land big ad deals. Google also handily beat it to the subscription music game, announcing its Google Play Music All Access service last month. But Apple also has the weight of its ubiquitous iTunes service to buoy it — not to mention a far better name.

At this year's WWDC, Apple is potentially poised to unveil a streaming music platform to compete with Pandora or Google's Play Music All Access. But according to Bloomberg, reinventing how it sells music will also require revamping its iAd platform, which was initially created as a way for developers to place ads within apps. Apple is reportedly shifting iAd's focus towards the streaming radio service, hoping to catch the eye of major brands that will impress music publishers. Those ads will support streaming music for users, similar to the free tiers on Spotify or other services, sources say.

iAd was announced in 2010 for app developers, but its results so far appear relatively lackluster: while Apple has never positioned itself as an advertising company like Google, it's repeatedly had to drop the prices of its advertising bundles and sweeten the deal for developers. Bloomberg reports that the new iAd will place less emphasis on app advertising and more on radio. This effort is apparently being led by Eddy Cue and advertising head Todd Teresi, who was hired away from Adobe last year. Apple has years of experience selling music, but the ad-supported streaming model is still new for it — and convincing music executives to accept their terms will require convincing them that it can make advertising pay.

Two down, one to go: Apple has reportedly signed a deal with Warner Music for its long-rumored streaming radio music service, commonly referred to as iRadio. CNET reports that both sides reached an agreement earlier today, suggesting Apple is working overtime to have the product ready for a potential unveiling at WWDC. In its own report, The New York Times echoes that timeframe.

The company has already signed another massive label in Universal Music but Sony remains a significant holdout at this time. Still, Apple is making progress, with CNET also reporting today's pact factors in Warner's publishing arm Warner Chappell. Getting publishers on board is critical if Apple hopes to match (or best) Pandora with its own radio service.

Pandora, the web's top radio service, reported that the company's losses widened in its fiscal first quarter amid increasing competition and as the company prepares for another bruising fight on Capitol Hill. In addition, Pandora still hasn't named a new leader two months after CEO Joe Kennedy announced he planned to step down as soon as a replacement could be found.

Kennedy's replacement, whoever it is, will inherit a mixed bag. Pandora has a large audience of more than 70 million active users. At the moment, investors appear to be warming up to the stock. Pandora's shares were trading at more than $16 in early morning trading, more than twice the $7.08 the stock sank to in November; but only just above the company's June 2011 IPO price. Pandora is also off to a big head start among internet music services to get into cars. Pandora already has deals with BMW, Ford Motor and General Motors. The size of the overall market represents a big opportunity for Pandora as well. Traditional radio advertising is worth $17 billion.

For years, when it came to driving negotiations with internet music services over licensing, the top record labels were the locomotive and the publishers were the caboose. If the labels licensed songs, then usually the publishers dutifully followed. But now these publishers are in revolt, refusing to simply follow along, and holding up negotiations on Apple’s iRadio. At the heart of the dispute are shifting economics. The industry is moving from CD sales and digital downloads to streaming services like Spotify and Pandora. In that new model the publishers have been making far less money.

Pandora, the internet's top online radio service, was able to obtain recorded music rights via a blanket license that Congress created for online radio services. For publishing rights, the webcaster struck a deal with the performance rights organization (PRO), who once negotiated digital contracts on behalf of the major publishers. The one-stop shopping for publishing rights was a sweet deal for Pandora but the publishers were left unsatisfied with the terms. To prevent similar deals, they recently began to take back their digital rights from PROs, such as BMI and ASCAP. Apple and any other would-be webcasters must now negotiate separately with each of the big publishers.

Google's long-rumored Play Music All Access service is already out the door, while Apple's iRadio is still bogged down in licensing talks. According to music industry sources, all the haggling could prevent Apple from debuting the service at the Worldwide Developers Conference next month.

Sony/ATV, the largest music publisher, has rejected Apple's terms according to published reports. What's more, The Verge has learned this week that BMG Rights Management, the fourth largest music publisher, is also holding out. Insiders say that there's still plenty of "market momentum" behind iRadio and some of the industry's largest players — including Universal Music Group, which was the first to license songs for the service — want to see it launch as soon as possible.

Apple's effort to license a proposed online radio service, which the press has dubbed iRadio, is being stymied by at least one of the major music companies, multiple industry sources have told The Verge.

Sources say iRadio could still launch ahead of Google Play. Last month, The Verge reported that a licensing agreement with Universal Music Group was imminent, and the FT reported today that the deal was done. As for Warner Music Group, sources with knowledge of the talks say that "the structure" for a deal is in place but that the sides continue to hash out terms. The sources didn't know whether its Sony's recorded-music division or publishing unit that is balking at the terms Apple has offered but the FT reported that Sony execs want Apple to pay more than Pandora. According to multiple sources, Apple has agreed to pay a similar amount to the 12.5 cents Pandora pays for every 100 tracks it streams. In addition to the per-stream payment, the FT said that Apple has agreed to hand over a share of ad revenue as well as pay a guaranteed minimum sum.

The NPD Group has just released its quarterly report on the state of music sales, and unsurprisingly it says that Apple's iTunes store is dominating with 63 percent of digital music sales. Amazon came in second with 22 percent of all downloads by total volume, but even that number belies iTunes' reach, as eight of ten digital music buyers use iTunes for their purchases. However, NPD's numbers also contain some surprising, and perhaps sobering, results: only 44 million Americans purchased digital music at all in 2012. Digital music sales are also relatively flat over the past three years, increasing only six percent per buyer year-over-year.

Apple is expected to sign its first internet radio licensing agreement with a major record label perhaps as soon as next week, multiple sources with knowledge of the talks have told The Verge. Universal Music Group, the largest of the major record companies, has reached the final stages of the negotiations and Warner Music is close behind, the sources said.

Spokespeople for all three music labels declined to comment. Apple spokesman Tom Neumayr, said the company's policy is not to commet on rumor and speculation. The new service, given the unofficial moniker iRadio by the media, is supposed to help iTunes users discover new music and boost sales of downloads as well as generate ad sales.

A few years ago, leaders from the major record companies planted the seeds from which they hoped would spring the next generation of music distributors.

Apple's iTunes, the overwhelming leader in the sector, went largely unchallenged. Megastores like Tower Records and Sam Goody had vanished long before. Apple used its position as the top music store to dominate the labels, gradually pushing them to give up DRM while limiting their ability to price music. In response, the record companies licensed unproven streaming and subscription services in the hope that some of them would find audiences. The labels dubbed these services "access models" and the surviving companies — YouTube, Rdio, Spotify, Vevo, Pandora — are now starting to bear fruit.

"The subscription model has failed so far," Steve Jobs said in April 2007. "People want to own their music." At that time, Apple had solved the problem of making money in digital music with particular creativity: don't make money from music. With iTunes and the iPod, Apple sold music more or less at cost, selling the idea and lifestyle of music to sell high-margin hardware and draw customers into its ecosystem. "Never say never, but customers don't seem to be interested in it," Jobs said. If people wanted to rent or stream their music, Jobs' answer implies, Apple would help them do that if that experience continued to sell Apple's hardware. With the iPhone and its App Store, Apple would ultimately do just that.

Of course, as always, Jobs was also playing hardball. He knew that a group of music labels, worried at Apple's power over the music industry and uncertainty over Apple's push to drop DRM, were working with entrepreneurs on the streaming music service that would ultimately become Spotify. Apple needed to renegotiate its agreements with these same labels, and Jobs wanted them and everyone else to believe that Apple had a unique insight into consumers' behavior. Despite the posturing, there is no purity in the music industry. There is, and has always been, only pragmatism.

Last year rumors indicated that Apple was working on a streaming music service to be launched in the first quarter of this year, but The New York Times is now reporting the service has been delayed until summer at the earliest. According to the Times, it's all due to an inability to close the deal on crucial licensing agreements. Apple has been able to obtain many of the licenses it needs through ASCAP and BMI, two music industry performing rights organizations. Sony / ATV Music Publishing, however, recently pulled digital rights for acts it covers from the two groups, putting streaming music services in the position of having to negotiate with Sony / ATV one on one. The company covers a wide variety of artists, including the likes of Fun., Taylor Swift, Paul McCartney and Skrillex.

A recent report from the New York Post describes similar troubles. According to the publication's sources, Apple has offered up six cents for every 100 songs streamed as an opening bid. The record labels reportedly see that as far below the going market rate, with Pandora's rate listed as 12 cents for the same number of songs; Spotify is pegged as paying 35 cents per 100 songs. The notion of royalty rates for internet radio has been a hot-button topic lately, with Pandora publicly supporting legislation last year that it said would level the playing field between terrestrial radio and music streamed online. As part of that discussion, Pandora revealed that it paid over half of its annual revenues in royalty fees in 2011, while Sirius XM paid just 7.5 percent.

Apple CEO Tim Cook reportedly met with Beats CEO Jimmy Iovine to talk about its upcoming streaming music service, reports Reuters. Apple has been rumored to be working on a subscription service to supplement its iTunes Music store for some time, but details so far have been scarce aside from reports indicating a possible Q1 2013 launch.

Reuters reports that the meeting was corroborated by three people “familiar with the situation.” It reportedly concerned Beats’ upcoming streaming service, codenamed Project Daisy, in whose business model and rollout plans Cook was said to have been interested. Eddie Cue, Apple’s VP of Internet Software and Services and a leading figure in the development of Apple’s iTunes Music store, was also reportedly in attendance.

Rumors of a new music streaming service from Apple are being rekindled this week, thanks to an intriguing discovery on jailbroken iPads. According to 9 to 5 Mac, buried within the iPad music app on iOS 6.1 is a set of "radio button" files, marked with an icon similar to the radio logo that once appeared in iTunes for Mac. These buttons also contain the word "buy" in their filename, though it's worth noting that they only appear on jailbroken iPads, not iPhones.