The New York Times yesterday reported that Apple is negotiating with record labels for a Pandora-like service, and calls it a move that "could shake up the growing field of internet radio." The service would customize music to users' tastes - like Pandora does. Just like Pandora, Apple's offering would carry advertising, but through Apple’s iAd platform. Terms of the deal are unclear (e.g., if Apple would share ad revenue with labels or pay them through a licensing fee). Also unclear, whether or not the service will be ad supported and free, or with an ad-free subscription offering (which Pandora offers for $36).
Pandora is probably one of the five biggest mobile ad businesses in the US, as BusinessInsider describes; but still struggles with how to sell ads profitably. As the company said in an investor call earlier this week, "To date, we have not been able to generate additional revenue from our advertising products as rapidly as we have been able to grow our listener hours on mobile." In short – it has all the listeners it wants, but struggles to monetize that listenership.

But, it tries hard. After going public in 2011, it is more accountable for profit (difficult, considering the high royalty costs it pays). It banks on more local advertising (both digital and audio), through its just-launched reseller program; more feet-on-the-street account execs (the company has more than 515 salespeople); and is exploring a self-serve ad exchange (much like Facebook) to accommodate national brands and agencies used to exchanges.

So the Apple move seems a bit Scrooge-y. As the New York Times describes, the internet radio business accounts for under $1 billion a year in revenue by some estimates, so, "What’s in this for Apple?" wondered Wedbush Securities analyst Michael Pachter in a Times interview, given that Pandora, iHeartRadio and Last.fm all do a fine job already.

Pandora is just getting going. As recently as April, Triton Digital ranked Pandora as #1 among internet radio providers, and by a long shot. Its Ranker is a listing of the top-performing Internet audio stations and networks measured by the Webcast Metrics audience measurement platform. Pandora led the pack with nearly 1.4 million active sessions, versus 256,000 for second-ranked Clear Channel Radio. Pandora was up 119% in listenership over April 2011, and Clear Channel up 94%.

Also in June, Pandora partnered with some heavy-hitting local papers, including The Miami Herald, for localized ad sales. Pandora has loudly proclaimed its local targeting value for a couple of years, but has yet to make the most of it. But local papers can sell Pandora inventory bundled with their own ad products, which Pandora believes will help local advertisers use mobile ads to reach on-the-go consumers. Some of the media partners signed on to the program include The Miami Herald, The Salt Lake Tribune, The Tacoma News Tribune, The Ventura County Star and U-T San Diego.

So, Pandora has a plan in place to co-market with local newspapers that are bleeding print inventory and counting on digital for survival; Apple has yet to demonstrate any interest in localized advertising.

Once again, Apple’s plan is in the exploratory phase and the New York Times cites the usual "unnamed sources." Time will tell if it plans to eat Pandora’s hard-won piece of pie.