Is Radio Apple’s Seventh Billion-Dollar Business Unit?

What Apple's streaming radio service could mean for competitors

Apple's iTunes Radio service could have an audience of more than 70 million people ready to listen based on its brand name alone. In fact, a recent survey of 1,000 Internet radio listeners reveals one-third would switch to Apple's radio from their current favorite service. If these early insights are a glimpse of reality, Apple's entry into this market could completely shift the landscape and cut deeply into the audiences of Pandora, Spotify and the rest of the Internet radio market.

After months of speculation that an Apple radio service was on its way (including a report from CNET that hard evidence was discovered in the code of iOS 6.1 on a jailbroken iPad), the company announced a streaming radio service yesterday at its WWDC 2013. Set to launch this fall, iTunes Radio is a free Internet radio service delivering features familiar to iTunes users and a sophisticated personalization of song lists and stations based on user preferences and listening behavior.

Recently, GroupM Next conducted a broader study and analysis on Internet radio usage, and from it, compelling consumer data about Apple emerged, signaling the company would immediately gain an incredibly strong radio audience – if launched.

Knowing nothing about the service other than it would be made by Apple , 49% of respondents said they would be interested in the service, and 34% said they would switch from their current favorite service. What's fascinating is the staggering power of Apple's brand reputation. Consumers express faith in a product experience that steps outside of Apple's mainstream product offering, based on brand name alone. And for that, Apple has the competition to thank – Pandora, iHeartRadio, Spotify and others – for delivering a marketplace and services that have gained adoption the world over. The challenge now, which Apple would undoubtedly match, would be developing an experience for expectant consumers who, based on the study, are confident the execution of "iRadio" would be of the same level of style and quality of Apple's devices and operating systems.

The results are even more encouraging for Apple among heavy Internet radio users. For consumers who spend at least 20% of their radio listening time digitally, 70% said they would be interested in Apple radio, and 49% said they would switch from their current favorite product.

These results might seem too large to be an accurate estimation, however, consider that Apple's iTunes Radio would likely have exclusive features to separate itself from the current leaders in digital radio, and that Apple will likely launch the product with a large Apple-style marketing campaign. The initial adoption, particularly on iOS devices, could be enormous.

Is digital radio Apple's next billion-dollar business? Not yet, but time will tell.

According to eMarketer, digital radio in the U.S. will have 147.3 million monthly listeners in 2013, and advertisers will spend about $970 million in this market. If Apple were to capture about half of the market share with the release of its Internet radio service, it would translate to more than 70 million monthly listeners and roughly $500 million in potential ad revenue in the U.S. alone – assuming the service is ad supported. This also opens a new revenue stream into iTunes which, as expected, Apple has closely integrated with its radio service – listeners can access a free, ad-supported service or subscribe to an ad-free service, iTunes Match, for an annual fee of $24.99. Digital radio is probably not Apple's seventh billion-dollar industry right now, but it could be within the next five years.

Apple's radio product is potentially disastrous for other Internet radio services. In the study, respondents were asked to identify which services they currently listen to. Of those who said they currently use Pandora, 46% said they would switch to Apple's product. Of those who use Spotify, 47% would switch. The story is even bleaker for less popular digital radio products. For example, 66% of AOL Radio users said they would switch to Apple.

When Apple decides to flip the switch iTunes Radio later this year, it will be an absolute game-changer in the digital audio market, and likely another big win for Apple.

Jesse Wolfersberger is Director, Consumer Insights at GroupM Next.

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