Apple Targets Pandora and Spotify as Amazon Enters the Fray

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Apple’s (NASDAQ:AAPL) recently confirmed purchase of Beats Electronics for $3 billion includes Beats Music, the premium headphone maker’s subscription music streaming service. As many industry watchers have noted, this acquisition will bolster Apple’s ailing iTunes download business and complement its native iTunes Radio music streaming service. According to Nielsen SoundScan data cited by Billboard, digital track sales in the first quarter of 2014 fell 12.5 percent compared to the year-ago quarter, while digital album sales went down 14.2 percent.

Unlike Beats Music, which is only available via a paid subscription, iTunes Radio is primarily an ad-supported service, although users can get an ad-free version if they subscribe to Apple’s cloud-based iTunes Match service. In this sense, Apple’s iTunes Radio can be seen as a rival to the mostly ad-supported Pandora (NYSE:P), while Beats Music primarily competes against more subscription reliant music streaming services like Spotify.

According to a new report from The Information via Engadget, Apple will soon be making a change to iTunes radio that will sharpen its competitive edge against ad-supported music streaming services like Pandora. Advertising industry sources cited by The Information have reported that Apple will soon launch a new advertising initiative on iTunes Radio that will allow local businesses to buy targeted advertising on the online music streaming service. Apple may also add local radio content to its music streaming service via partnerships with local terrestrial broadcast radio stations. This could deal a serious blow to Pandora’s own ad-supported service since advertisers may be more willing purchase advertising if they know that it will be embedded with local content.  

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