Has Apple Inc. (NASDAQ:AAPL) lost its competitive edge and innovative abilities? Forbes contributor Haydn Shaughnessy doesn’t think so. In fact, he goes so far as to say that the company is still “in the disruption business” because of its iTunes Radio service.
Apple is disrupting Internet radio
Sales did indicate that the iPhone 5S was doing remarkably well in early sales, especially since not everyone was impressed with it when it was unveiled. However, Shaughnessy doesn’t think it’s the hardware that’s keeping Apple Inc. (NASDAQ:AAPL) ahead of the competition. He said we were basically so hyper-focused on hardware that we didn’t even notice that Apple’s new iTunes Radio service was starting to disrupt the Internet radio industry.
He notes that Apple’s offering isn’t really anything “essentially innovative.” However, he said the combination of the iPhone 5S hardware, the software that’s inside of it, the iTunes Radio service and the connection makes a big difference to the Internet radio business.
Apple’s changing the structure
He notes that Apple Inc. (NASDAQ:AAPL) recorded 11 million unique users on iTunes Radio over launch weekend, even though there were so many problems with iOS devices downloading and installing iOS 7, which contains the service. According to Shaughnessy, the big lesson here isn’t about changing a product or service, but rather, about influencing the structure of a particular sector.
Of course most of the comments about iTunes Radio focused on how it competes with Pandora Media Inc (NYSE:P), but he believes that there’s a bigger disruption already happening within the industry.
The shift from over the air to digital radio
Currently traditional radio broadcasting companies like Clear Channel are finding themselves in a bind. They’ve got to find a way to transition from being purely an over the air company to one that provides digital music and content. If they don’t, then they face the real possibility that they could become extinct.
Interestingly enough, Clear Channel recently announced a new deal with Warner music in which it will pay lower royalties on digital music and a new royalty on over the air music. Currently, over the air radio stations do not pay royalties, but digital stations like Pandora Music Inc (NYSE:P) and Apple Inc. (NASDAQ:AAPL)’s iTunes Radio do. So this new deal essentially evens the playing field for Clear Channel as it attempts to make the transition from over the air to digital as smoothly as possible.
Shaughnessy believes that the result of Clear Channel’s new deal, especially if other radio companies follow suit, will be that advances of digital streaming radio will be sped up.
Apple is one of the world’s biggest music distributors
Gizmodo reports that last year digital download stores made up 70 percent of recorded music revenue. Some estimates suggest that iTunes alone makes up 63 percent of that pie, which means Apple Inc. (NASDAQ:AAPL) is one of the biggest music distributors in the world.
Radio industry experts believe Apple will need to hit between 30 million and 50 million unique listeners every week in order to be a major player in the industry. With 11 million of them in just three days, this number is certainly within striking distance for the company.