Bloomberg reports that Apple has stepped up talks with major music labels to start up an advertiser supported streaming music service to compete with Pandora by early next year.
With sales of music downloads slowing, Apple and record companies want to create new ways for customers to discover and buy digital music. To challenge Pandora, Apple is seeking licensing pacts with labels that allow more flexibility about what listeners hear. Pandora, the Internet radio leader, relies on a compulsory license that limits how often users can skip tracks and how many times an hour an artist can be played. Apple is also pushing for earlier access to new releases.
Anonymous sources say the discussions are centered partially around how ad revenue would be shared, and say a deal could be reached by mid-November. Apple would then start the service during the first three months of 2013.
Pandora, based in Oakland, CA, saw its shares take their biggest fall since September 7 yesterday, dropping 12% after Bloomberg reported on Apple’s progress in discussions with music labels. The shares rebounded a bit today, rising 2.4% to $8.46 at 9:43AM EST.
Eric Brown, vice president of communications at Pandora, said in a statement. “We don’t comment on our stock price or rumored competitive moves, we remain focused on our listeners and delivering the best Internet radio experience for them.”
Executives from Universal Music Group, Warner Music Group, and Sony’s music division visited Apple headquarters in Cupertino, CA in recent weeks to learn more about the company’s plans. Apple wants listeners to be able to purchase tracks as music streams, or revisit what they’ve heard in auto-generated playlists, the sources said.
Apple want’s to create an app tailored for its iOS devices, it wont focus on delivering music through a web browser.
The negotiations between Apple and the record labels have centered around advertising, the sources said. As well as an upfront fee, the record companies want a percentage of ad sales and the ability to insert their own commercials for artists. Apple wants to use the service as a way to grow its iAd mobile advertising platform, and is exploring ways to integrate iAd with iTunes to steer customers back to iTunes.