Why iTunes Radio Is a Game Changer

iTunes Radio launched last week to far less fanfare than iOS or the iPhone 5s. But don't underestimate just how important this addition can be to the Apple (NASDAQ: AAPL  ) family.

The new streaming radio service brings radio stations to Apple users, makes iTunes Match far more attractive, and makes it incredibly easy to buy new music from the iTunes Store. It's another piece of a growing ecosystem that keeps consumers with Apple long-term.

Watch out for Apple
Apple is far from the first company to offer streaming radio, but it's making a strong push into the area. An ad-supported version of iTunes Radio is free, while the annual $24.95 charge for ad-free radio and iTunes Match is less expensive than the competition, and the product is more integrated into your iPhone, iPad, or Mac than other services.

Pandora's (NYSE: P  ) ad-free radio costs $36 per year and offers similar stations as Apple but doesn't have iTunes Match. For those on the fence, that may be the selling point for iTunes Radio (it was for me). 

Sirius XM's (NASDAQ: SIRI  ) music-focused subscription is $159.39 per year, more than six times the cost of iTunes Radio. Sirius XM offers far more than just music, but for subscribers looking for music only, this could be a viable alternative, especially as cell networks fill in gaps around the country.

This situation may push Pandora and Sirius XM to cut prices to compete with Apple. That wouldn't be good for either company as they try to grow profits, or in Pandora's case, just turn a profit.

P Net Income TTM Chart

P Net Income TTM data by YCharts.

Apple has an edge in that it doesn't have to make money on iTunes Radio itself. Part of the appeal is in selling more songs to users and in keeping them in the iOS family. It's almost too easy to buy songs on iTunes Radio, and if you match your music across Apple devices, it's one more reason not to leave the ecosystem.

Harder to escape the clutches of Apple
What Apple is really doing with products like iTunes Radio, iCloud, Photo Stream, iMessage, iTunes, and the App Store is creating an ecosystem that's nearly impossible to escape. When Apple has all of your files, music, movies, and notes on its servers, it's difficult to shift to another manufacturer. That's the genius of iTunes Radio, and in my opinion, it's priced to take significant share from competitors.

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Read/Post Comments (13) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 24, 2013, at 5:24 PM, hthussein wrote:

    I agree with 100%.

    The debate over the fine print of which service is superior is mute. iTunes Radio, right out of the gate provide a comparable service at a lower price point with much easier option to buy, store and share your music.

    11 million users in 2 days is just the tip of the iceberg. When iTunes Radio gains more users, which is a matter of very short time, or when Pandora is forced to lower it's ad free subscription model, Pandora financials will not look appealing anymore.

    In fact, their stock will crash just as fast as it rose these past 6 months. Advice to Pandora longs, log in your gains, because at current evaluation, Pandora is as over valued as AOL in their best days.

    SELL SELL SELL P....

    Long APPL and very short P.

  • Report this Comment On September 24, 2013, at 5:36 PM, 67vair wrote:

    Apple shmapple, once the bloom is off the rose, Itunes, is just another jukebox. Not a threat to Sirius.

  • Report this Comment On September 24, 2013, at 5:47 PM, Khalig wrote:

    Spotify is not mentioned here, which is the biggest threat to not only iRadio but also iTunes in general. Almost every title found on iTunes can be found on Spotify which offers unlimitted streaming for $5 a month or $10 for high quality sound- this is a good bargain compairing to $1.3 per track from ITunes. It also allow to create playlists and download music for off-line listening. Radio section of the app is free and available for android users as well that can ultimately reach more subscribers iOS and Android combined, whereas iRadio is confined to Apple users.

    Yes Long Apple for now until next year when Mi3 catches up with iPhone with half the

  • Report this Comment On September 24, 2013, at 6:13 PM, makelvin wrote:

    Don't forget that Apple's $25 also includes iTunes Match which allows the user to store their music library for online access anywhere whether if their songs were purchased from Apple or not. This is something that neither Pandora or Sirius XM offers.

  • Report this Comment On September 24, 2013, at 6:52 PM, duzer5 wrote:

    Sirius is a complete package. If you are trying to discount for the music people-you lose. I don't care that our Ipad can go to iTunes-and I don't buy the songs anymore. Just listen to the channel I'm in the mood for. It's so specialized now. Sports and news will keep me from dropping Sirius and I won't pay to have a 2nd service when music is part of the siri package.

  • Report this Comment On September 24, 2013, at 7:19 PM, jojopuppyfish wrote:

    If you want to beat Sirius, the battleground is the automobile.

  • Report this Comment On September 24, 2013, at 10:11 PM, Jason91789 wrote:

    Apple doesn't need to beat Pandora. Once we see the slow down in Pandora growth the stock will tank. Pandora CEO will say don't worry it just a small slow down, there is room for everyone.

  • Report this Comment On September 24, 2013, at 11:21 PM, CaribouPaku wrote:

    How much is SiriusXm internet compared to itunes? Wouldn't it be nice to compare apples to apples? Because if you are talking about all of SiriusXm to Apples iTunes there is no comparison. I don't know if you think people are naive and believe this garbage or you just write it to make yourself feel better but this is a very subjective article and misleading.

  • Report this Comment On September 25, 2013, at 5:03 AM, zukerman wrote:

    Sirius' net has fallen from 3.5b to 479m is a statement made by a scared little rabbit, not to mention untrue. You make the Match seem like they had a choice whether to offer it or not. Pandora has already proved that an ad supported streaming music service isn't profitable and Apple pays a higher royalty. Apple is clearly late to the party and introduced a cheaper phone that proves that. The once was leader is now just a player copying those that had the foresight to give the consumer what they wanted.

  • Report this Comment On September 25, 2013, at 9:06 AM, iroticiv wrote:

    Content, content, content

  • Report this Comment On September 25, 2013, at 12:17 PM, highgrowthcarson wrote:

    Great buy opportunity for P. Every time something happens with itunes radio P dips, then recovers higher. Why? Because itunes radio is not a real threat. Music Genome Project provides powerful tech moat for P. No one else does discovery like P. MGP is based on huge amount of data collected over a decade. Hard for apple or anyone to duplicate and doesn't seem like anyone is trying.

    And don't we all love P as consumers? Why would I try iTunes radio? If a really, truly deeply love a song I'll buy it and put it in my iTunes 'Music' app. If I want to listen to types of music with great discovery, I'll use P as always.

  • Report this Comment On September 25, 2013, at 12:23 PM, KingSeojong01 wrote:

    Agree w Khalig. As of right now I don't see how either beat Spotify.

  • Report this Comment On September 25, 2013, at 7:19 PM, BillFromNY wrote:

    As someone heavily invested in Sirius, who has said like so many that Pandora is not a competitor of Sirius because of content, I think that Travis provides a pretty realistic view. Internet radio will have some negative effect on subscriptions. If a 21 year old is buying his or her first car (or Daddy is buying it for her), and that person is getting the service mostly for the music, some of them will get the much cheaper Internet streaming.

    The question is how many? It would be really helpful to investors if Sirius made public the popularity of every channel. But don't expect that to happen.

    I myself subscribe mostly for the music, with the important exception of the NFL channel. I would put up the extra bucks to keep that channel, but some would not.

    I should also add in fairness to Sirius that it offers on its music channels content that cannot be duplicated on Pandora or Apple. Speaking for the Boomer generation, only on Sirius can I listen to Cousin Brucie hosting a live 60s oldies program that sounds just like a broadcast of his show 45 years ago and brings back a flood of memories. Only on Sirius can I listen to a weekly three hour program hosted by Nancy Sinatra on the life and times and music of her father.

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