Apple's iTunes Radio Allows Users to Pay to Avoid Ads

iTunes Match Subscribers Get to Listen Ad-Free

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Apple confirmed a week's worth of speculation on Monday with the announcement of iTunes Radio -- its foray into digital music streaming -- at its annual Worldwide Developers Conference.

The free version of iTunes Radio will feature both display ads and audio ads that play between songs. As AdAge reported last week, all ads within the service will be served, targeted and sold via iAd, Apple's mobile ad network. Apple will be sharing 10% of the ad revenue it earns via the service with copyright holders, more than double Pandora's rate of 4%.

Like with competitors Pandora and Spotify, iTunes Radio will function under a freemium model; consumers can access an ad-supported version for free, or upgrade to a no-ads version by purchasing a $24.99 yearly subscription to iTunes Match, Apple's cloud-based music storage feature.

In this respect, iTunes Radio is nearly identical to Pandora. The main differentiator between the two is that iTunes Radio allows (and encourages) users to download songs that they will own forever. When a user is listening to a song on iTunes Radio, he or she will have the opportunity to buy the song for $1.29. iTunes Match users will able to access purchased songs on all of their mobile, laptop or desktop-based Apple devices.

iTunes Radio, then, is both a Pandora competitor -- in terms of users and ad dollars -- and a proxy convert more iOS users to iTunes Match. Because iTunes Radio does not allow users to search for and play any song at will (like Spotify), users will be enticed to purchase songs recommended through the platform.

Spotify currently has three payment options: a free, ad-supported desktop version, a version that rids the desktop version of ads for $4.99 per month and Spotify Premium, a $9.99 monthly subscription that allows customers to access Spotify ad-free and download songs onto mobile devices for offline listening. A yearly subscription to Spotify Premium is roughly equivalent to an iTunes Match subscription and buying 73 songs through iTunes radio.

Several agency executives believe iTunes Radio's ad products will have a leg up in targeting over Pandora and Spotify due to the amount of data they already know about their users. Served though iAd, iTunes Radio ads will allow brands to more accurately target customers based on location. iTunes Radio will also allow marketers the opportunity to target consumers based upon what TV shows, movies and apps they've downloaded via iTunes.

David Reeves, VP at ad agency 22squared, said, "Pandora and Spotify probably don't have the location component, and they don't have access to other apps on my device. That's another level of context Apple can access that others can't."

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