Internet radio has been at the forefront of the mobile war.
One of the key features of Apple’s (AAPL) iOS 7 was iTunes Radio, and Google (GOOG) was in the headlines at the start of the week after releasing its own Google Play Music app for iOS. And Rdio — the streaming music service start-up co-founded by the guy behind Microsoft’s (MSFT) Skype service — grabbed attention when it announced it was laying off staff.
Internet radio services are stuck with high costs (music licensing fees), but there’s significant advertising potential too. According to eMarketer, advertising spending for Internet radio in the U.S. is expected to hit $970 million this year, growing to $1.31 billion by 2016. Premium subscriptions and “purchase now” options also bring in revenues.
The battlefield is growing, with industry leaders like Pandora (P) and Spotify facing competition from tech giants Apple and Google. And given the music industry pressures for higher song licensing fees, now would be a good time to review the current state of Internet radio.
The market is a crowded one, with dozens of players, but here are five Internet radio services currently in the spotlight.
Launched in 2005, Pandora made its name as a streaming music service that learned listeners’ preferences and used a proprietary algorithm to play songs the listener might enjoy. Naturally, the listener could then buy those songs from a selection of online retailers.
Pandora’s Internet radio service is available for PCs, as a mobile app and through streaming media devices like Microsoft’s Xbox. Options include a free, ad-based model and a premium subscription called Pandora One that currently costs $36 per year.
In a case of new media taking over old, the company actually bought an old-school FM radio station earlier this year. The move was less about nostalgia and more about maneuvering to protect against rising music licensing fees.
Pandora’s active listeners have reached 70.9 million, up 20% year-over-year, and the company counts more than 250 million users — with 2.5 million premium Pandora One memberships. However, analysts quickly noted that one month after the launch of iTunes Radio, Pandora had lost 2 million listeners.
At its IPO in 2011, Pandora was valued at $16. It got off to a rocky start, but has been climbing all through 2013 and now trades at $28.82, which seems over-valued given the threats it’s currently facing.
A 2008 entry into the Internet radio market, Sweden’s Spotify is offered on mobile devices, streaming boxes and PCs. It offers unlimited free, ad-based streaming (in the U.S. — it sets hourly limits in many other countries) as well as a paid premium services. Music can be purchased directly from online retailers.
Spotify claims 6 million paid users (prices vary by country and plan, but Spotify Premium costs $9.99 in the U.S.) and 24 million active users.
Under fire over royalties, Spotify announced in July that it had paid out more than $500 million to artists and was on track for hitting $1 billion by the end of 2013.
Spotify is also highly integrated with social media, allowing Facebook (FB) and Twitter (TWTR) users to share their song choices and playlists.
Apple’s new Internet radio service has the advantage of being a built-in part of iOS and OSX, meaning that hundreds of millions of iPhone, iPad, iPod Touch, Apple TV and Mac owners (as well as PC iTunes users) have access to it without having to install anything. It’s also integrated with Siri, Apple’s voice assistant.
With iTunes’ massive music catalog, Apple also has another advantage over many competitors. It’s also going directly after Pandora with its own song suggestion algorithm leverages the massive user data such as song ratings and Genius recommendations collected by iTunes.
The ad-based iTunes radio is free, and Apple offers a $24.99/year premium subscription version that eliminates those pesky ads. The company says 20 millions iTunes radio users listened to 1 billion hours of music in its first month of service.
Launched in 2010, Rdio offers ad-free, subscription Internet radio for a wide range of mobile devices, streaming boxes and PCs. The service features sharing and social media integration, and songs can be cached for offline playback. Rdio does not release subscriber numbers.
The company charges a $10 monthly fee for its full service (half that for web-only), but in October Rdio announced a new streaming service that is free to users. Unlike competitors, the free version does not serve up ads, but it does restrict users from choosing songs.
Besides being forced to offer up a free service in October to meet competition (which reportedly tripled its total number of users), Rdio was in headlines this month with the news that it was laying off staff — between one-fifth and one-third of employees, according to TechCrunch.
Google Play Music
When Apple releases a new feature for iOS, you can bet Google won’t be far behind with its own app for iPhone users. In the case of iTunes Radio, it took all of a month for Google Play Music to show up in Apple’s App Store — along with a free trial of its $9.99/month All Access service.
That All Access premium service includes the ability to download songs locally (for offline use), a choice of three different streaming qualities, and Google’s own algorithm-driven streaming Internet radio service, ad-free. Naturally, users can buy music from Google Play and stream music from an iOS device to Google’s Chromecast.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.