What was surprising, however, were the descriptions used in the news reports. Some media outlets claimed that Apple was somehow "scrambling" to get a deal done prior to today's Worldwide Developer Conference, or WWDC. Some even went on to suggest that Tim Cook's back was against the wall and he was forced to yield in his demands, if he wanted to officially unveil Apple's so-called "iRadio" during Monday's keynote opening.
But let's be real here for a moment -- we've been discussing this "iRadio" rumor for almost two years. It's been a matter of "when, not if" the tech giant enters the fray. So all of a sudden, Apple was unprepared to deal with minimum payments and royalty rates?
Look, Apple knows a thing or two about music. So, while some of these pundits are quick to relegate Apple's iTunes platform to "mediocre status," these self-proclaimed experts in music quickly forget that iTunes single-handedly saved the music industry from the brinks of collapse when the likes of Napster and several other popular rogue applications tried to steal the works of artists under the pretext of "freedom."
During the midst of all of this, other than servicing the needs of "free loaders," Pandora was nowhere to be found. No all of a sudden, Pandora wears the white hat, while Apple is seen as an outlaw. If Apple plans to take iTunes' revolutionary platform a step further with iRadio, the music industry must oblige. It's their duty.
So for those who want to use this as an opportunity to take another lame shot at Tim Cook, understand that Apple was not "scrambling" to get a deal done. The overall parameters of this deal with Sony were likely already in place months ago. The bigger issue here is, what an iRadio service, which is presumed to be free and ad-supported, will mean for the future of Pandora.
Some call it a battle of "good vs. evil," where Apple is coming to demolish Pandora, "the innocent bystander." First, Pandora is in business as a public company, not as charity, but because it wants to make money. To that end, every competitive rule in a capitalistic playing field applies.
Unfortunately, making money has not been something that Pandora has shown a propensity to do. And it's not going start now. This is despite having more than 7% of the radio market share. And now, with Google's
Here's the problem; Pandora needs music to survive -- Apple doesn't. Apple sees music streaming as nothing more than a strategic way to advance its capabilities in services and mobile advertising. And if the company is able to leverage and monetize its half-billion user base, it's a good move. But in doing so, it removes leverage from Pandora against advertisers.
What's more, given the fact that Pandora is already struggling with rising royalty costs, the company will get squeezed out quickly. Many Pandora bulls insist that the company's Music Genome Project will continue to set the company apart. "Apart" from what? There are several other platforms that are just as effective in music discovery -- Apple's iRadio, which will allow users to set their preferences, will likely take the MGP-like feature to another level.
Consider this. In 2012, Pandora reported average revenue per user of $4.42, when adjusting out ad revenue. Even though this figure pales on comparison to a subscription model like Sirius XM
Apple, on the other hand, has no problems with monetization. And when applying the $4.42 that Pandora generates per user toward Apple's 500 million users, this amounts to $2.2 billion dollars. It seems aggressive, yes. But even if Apple were to reach 40% penetration, which is realistic within a year, it would still amount to just under $1 billion per year in revenue.
So for those who expect another mediocre product in iRadio and its revenue potential, it's time for you to lower your volume or change your frequency altogether. Save your energy. You'll likely need it to sing Pandora's eulogy.
At the time of publication the author was long AAPL.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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