Apple’s online radio service said to challenge Pandora in 2013

Apple Inc. and major music labels have intensified negotiations to start an advertising-supported Internet radio service by early next year, according to people with knowledge of the talks.

Talks are centered in part around how to share ad revenue and a deal could be reached by mid-November, with Apple starting a service within the first three months of 2013, said the people, who asked not to be named because discussions are still in progress.

With sales of music downloads slowing, Apple and record companies are seeking new ways for customers to discover and buy digital music. To challenge online radio leader Pandora Media Inc., Apple is seeking licensing pacts with labels that allow more flexibility about what listeners hear. Pandora 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 seeking earlier access to new releases.

Executives from Vivendi SA’s Universal Music Group, Warner Music Group Corp., and Sony Corp.’s music division visited Apple’s headquarters in Cupertino, California, in recent weeks to learn more about its radio plans, the people said. Apple, the world’s biggest music retailer with more than 400 million iTunes accounts, wants listeners to be able to buy tracks as music streams or revisit what they’ve heard in auto-generated playlists, they said.

Tom Neumayr, a spokesman for Apple, declined to comment, as did representatives for the record companies.

Apple fell 1 percent to $610.49 at 3:02 p.m. in New York. Through yesterday, the shares have climbed 52 percent this year.

Prominent Ads

Online digital music sales grew 8 percent in 2011 and 6 percent in 2010, compared with annual growth between 12 percent and 200 percent in the preceding five years, according to the London-based International Federation of the Phonographic Industry.

Pandora gained 8.4 percent on Oct. 23 after Apple didn’t introduce a radio service during an event it held to unveil the iPad mini, a smaller version of its tablet computer that will start shipping in November. Pandora, based in Oakland, California, rose 2.2 percent to $9.49.

The negotiations, reported Sept. 7, have centered around advertising, the people said. In addition to an upfront fee, record companies are seeking a percentage of ad sales and the ability to insert their own commercials for artists, they said. Apple sees 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.

Ad Push

The advertising initiative is part of broader flexibility Apple Chief Executive Officer Tim Cook is giving the company’s mobile advertising group to lure new business and integrate ads with other Apple services, according to people familiar with the matter.

As Apple competes with Google Inc. for mobile ads, Cook is giving more leeway than late co-founder Steve Jobs allowed on how much Apple charges and how much data is shared with marketers, said the people. That already won Apple multimillion- dollar contracts from Procter & Gamble Co. and others for ads that appear inside thousands of applications available to iPhone and iPad users.

Bloomberg News

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