Should radio be worried about Apple iTunes Radio?

Apple launched "iTunes Radio", a streamed music service, earlier this week. This follows fast on the heels of Google's "Google Play Music All Access" announcement

We've been here before of course - services like Pandora and Rhapsody in the US, and Spotify/last.fm/We7 over here in Europe have been operating various forms of streaming music services for some time.

The concern being expressed is the impact of a launch of a streamed music service from someone with the market power of Apple or Google. Then there's the rumour that Amazon will follow suit! That's an awful lot of streamed music services, many of them from big players with lots of knowledge about us and our purchasing/browsing/music consumption habits.

The two issues I see are as follows:

* Will this plethora of services eat into traditional radio audiences?
* Can they make money - and if so will this cannibalise traditional radio revenues?

Dealing with each in turn - I have said repeatedly that I don't believe customised, streamed music delivery is radio. It may, at the margins, take some consumer time away from radio consumption, but I believe it is much more likely to be a substitute for existing music consumption via CD/MP3 players or other devices. Pandora is the most entrenched service in the US, and whilst it claims to be "radio" it isn't really - read this great analysis from Mark Barber to understand why - but even Pandora is only claiming a tiny fraction of the cume/TSL of traditional radio. Will more and more of these services grow TSL to streamed music? Sure, to a degree, but cannibalisation of existing streamed services is more likely.

Of course I could be wrong - but even music intensive radio stations offer far more than a streamed set of tracks. Brand values, companionship, personality, interaction, news/traffic and other utility functions all make the user experience of listening to a radio station completely different in my view. And radio is ubiquitous, and free. The opportunity for listeners to consume streaming audio is also more limited, either because of the lack of proximity to internet access in certain places where radio is available, or just the cost if accessing on a mobile device. Radio has consistently faced challenges from other, newer media, but its ease of access, versatility and variety, information delivery and companionship features have consistently allowed it to co-exist alongside new entrants. I don't believe streaming music is an existential threat to that co-existence.

More critically - can these streaming services make money - and will this impact radio revenues? Well, a little bit of maths is in order here - so bear with me. A radio service listened to by 1,000 people in any particular hour could theoretically charge £2 for a 30" spot at prevailing commercial rates. So assuming 20 spots per hour (10 minutes) it could generate £40 of income for each 1,000 listeners. Or 4p per listener, per hour.

Apple is rumoured to have struck a deal with the major labels to pay them 0.16c per track played. Assuming 13/14 tracks per hour that's a 2c recording rights cost per listener per hour. Now that's just for the recording rights. Publishing rights are likely to double that cost to 4c per listener hour. So, in UK currency, the costs to Apple are about 3p per listener, per hour.

So if that's what Apple are paying just for the music rights, and they also have to cover all of the infrastructure/technical costs of their service, run sales teams (as Pandora do I understand) and make a profit, they are going to have to generate a significant premium to the 3p they are already paying out every hour someone might listen to them.

Maybe 10p would cover everything and allow them to make a profit. But that's 2 to 3 times what traditional radio is making for every listener hour. And we are running 20 ad spot loads - could any streaming service interrupt its music for that heavy an ad-load - I doubt it. Maybe 5/6 ads tops I would think. So really they are likely to require spot prices getting on for 10 times more costly in terms of cpt to make their revenues stack up.

Ah, I hear you say - but they've got all this data, so can sell spots at higher value. Possibly - but Radio isn't a classified medium, so ads have to be made - and sold. And that's expensive. I can't see the Google ad model of text ads in search (or as pop ups on screen in YouTube) being converted to audio-based streaming services.

Subscription might work; and certainly Pandora and others are trying this. iTunes Radio will be ad-free if users pay for iTunes Match, which currently costs £21.99 a year. I'm not sure if the labels would want even higher rates if subscriptions are involved, but this might be a way for these services to monetise their audience. (That subscription fee would mean Apple makes a profit if listeners use the service less than 10 hours a week).

I just can't see the ad-supported business model though. They've got to sell all those ads, every hour, because they are being charged for every stream. And with Apple vs Google vs Amazon vs Pandora etc, the competition for ad revenues for this type of service will become pretty fierce pretty quickly.

Might this lead to massive downward pressure on radio rates? Well actually, the reverse might be the case - certainly these services will have to charge cost-per-thousand rates much, much higher than we do - so maybe we'll get dragged up! It's worth also pointing out that a very high percentage of our income now comes from campaigns where sponsorship or promotion or brand advocacy is an essential part of the mix. A straight spot only campaign is becoming rarer on radio - and SPI/Brand Advocacy is pretty near impossible on a streamed service. So I think our revenue base can be largely protected - but for sure some advertisers will try streaming services, so we mustn't be complacent.

Will these services be disruptive? Yes.

Do they spell the death-knell for radio? I don't think so.