Apple Inc. (NASDAQ:AAPL)’s 10 year old iTunes Music Store is the biggest music retailer in the world with more than 300 million outlets. Apple Inc. (NASDAQ:AAPL)’s chief executive Tim Cook recently revealed that the store has details of 575 million credit cards, which is more than any of its competitors. Horace Dediu, founder of the Asymco consultancy believes that the real achievement is adding about 500,000 new accounts every day by iTunes.
However, the music businesses have long envied the power that the iPhone maker commands in the digital music space though they love that the company has made the business a money spinner.
But with the launch of iTunes Radio last week at Apple Inc. (NASDAQ:AAPL)’s Worldwide Developers Conference in San Francisco, the businesses may feel somewhat relieved, says a report from Guardian. The streaming radio service from Apple Inc. (NASDAQ:AAPL) is similar to that of Pandora Media Inc (NYSE:P), having 200 million registered users, or Spotify, which has 24 million active users worldwide and 6 million paying users. The service allows a user to enjoy a specific song in exchange of a fixed charge. The charge may be around 0.085p per track in the UK and around 0.96c per track, in the U.S.
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However, one disadvantage that the segment suffers is that the music cost does not come down as the quantity increases; there are no economies of scale. As a result to make the service profitable, Spotify has a 10-hours-per-month limit on free listening while Pandora Media Inc (NYSE:P) does not allow users apart from U.S. to avail the services.
How Apple Will Make It Work
Apple Inc. (NASDAQ:AAPL) will make use of its iTunes ecosystem, which has always been beneficial, and the company will start from U.S. where it has 54 million iPhone users. Assuming 50 million users register for the service listening to 10 hours of iTunes Radio per month (about 200 tracks) that comes about $96.9 million for the music labels.
It will be a win-win deal for Apple Inc. (NASDAQ:AAPL) as it will add to the cash pile by selling a few million extra iPhone or iPads, which will help it to make a net profit. And the service will be ad-supported, which will again contribute to the revenues.
Also, some of the users might also want to buy their favorite songs directly from iTunes. Assuming Apple Inc. (NASDAQ:AAPL) keeps a few cents of profit from any iTunes sale, then in UK, where the streaming costs is much lower, Apple Inc. (NASDAQ:AAPL) will only have to make one sale per 50 listens to break-even.
Apple Inc. (NASDAQ:AAPL), which deals with digital music on a much larger scale, require deals in some of the countries to make iTunes Radio the world’s biggest streaming music service.