, , ,

Has Apple Learned Anything from Its Samsung Competition? Apple’s iRadio Quagmire

Apple's iRadio service to come later in 2013

[Photo Credit: Technomild]

Apple proven to be a formidable foe in the last seven years, and few (if any) would doubt that. Cupertino transformed the smartphone experience into one in which contact with a touchscreen would consume American customers. The iPad has transformed mobile computing, and many companies have gone on to imitate the tablet’s design and fame ever since (if you count Sony’s so-called future “EyePad” such an example). At the same time, however, Cupertino has created an iTunes but no music service for its customers — nothing close to Spotify, iHeart Radio, or Pandora. When the company announced some months ago that it would soon create a “Pandora-like music service,” Pandora’s stock dropped some 15-20% in the same day as Apple’s announcement. It seemed as though investor confidence was not the same upon Apple’s declaration. A company that can plummet stock in this way is no ordinary company by any means.

Until now, however, Apple’s supposed “iRadio” service has been in constant meetings and negotiations. The reason? Sources say that Apple is doing what it always does: dictating terms to record labels. According to MacRumors writer Husain Sumra,

“Back in October (2012), Bloomberg reported that Apple and music labels had re-entered intense negotiations and iRadio was set to debut in early 2013. CNET then reported tin December that the sides were far apart because Apple’s terms left the labels ‘cold'” (Husain Sumra, “Apple’s Pandora-like iRadio Service to Launch in 2013?”)

Apple’s negotiations are not going well, particularly since this week, artists and record labels laughed at Apple’s unreasonable terms. TUAW’s Steven Sande reports:

“The New York Post has an exclusive today about Apple’s attempts to get rights from record labels for a proposed music streaming service, which are apparently falling on deaf ears because its offer is ‘seen as way too cheap.’

An executive at one label told the Post that ‘Apple wants a rate that is lower than Pandora’s, and the numbers don’t lie. Pandora currently pays a royalty of 12 cents per 100 songs streamed; Apple’s initial offer was about 6 cents per 100 songs streamed” (Steven Sande, “Record labels laugh at Apple’s proposed royalty rate for streaming service”).

How many times have we heard of Apple not forging partnerships because Cupertino is too demanding and not sacrificial enough in its negotiations? If you don’t believe me, think of Apple’s problems with Apple TV partners in the past, not to mention its current problems with China Mobile (China’s largest phone carrier). China Mobile has refused to sell the iPhone because Apple wants too much money. Also, pair China Mobile’s discontentment with the fact that carriers in Russia have started to rebel against Apple’s exorbitant prices for its iPhones — all because companies like Samsung offer quality smartphones at excellent prices.

The same problem has existed here in the United States with phone carriers. Apple requires that carriers pay the company $450 or so for each iPhone the carrier sells. In contrast, other phone manufacturers only charge half of that ($225) for each Android smartphone the carrier sells. While there are many tech writers and readers who look at Apple’s profits and say, “Apple has made billions of dollars in sales each quarter,” they should ask themselves why; why has Apple made millions? In a word, apart from the fact that the Apple brand has always attracted consumers who want to be in the “in” crowd (yes, peer pressure exists in the tech world, too!), Apple has charged twice as much for its iPhones. Do the math, and you will see that it’s not hard to match a competitor like Samsung when you charge so much more for your phones than Samsung or Google. In such an exorbitant scheme, Apple need not sell as many iPhones to keep its billions flowing.

I am not knocking iRadio, or saying that it will not be a good service. It has the potential to remain, like iTunes, or become obsolete, like Apple’s failed social experiment, Ping. At the same time, Apple’s desire to pay half of what Pandora pays for music streaming (when there are companies like iHeart Radio that pay 22 cents per 100 songs) shows that Cupertino is unyielding when it comes to its terms. It is fine to do this when you are the star of your own show; and, if the music were produced by Apple and Apple wanted to make demands to record labels and artists, it would still be seen in a bad light — but tolerated better. In this situation, however, Apple cannot afford to say, “agree to our terms because we’re Apple.” Rather, Apple must realize that, given the popularity of the music artists and record labels (and the need for producers to make profits), Apple is a “little fish in a big pond.” The stars are big, the producers are big, the record labels are important — and each of these entities looks to make its profits first, before Apple. Apple has approached the iRadio project as though it is the one producing the music, artists, record labels, and sales. Without the music artists and labels, however, Apple’s iRadio will be no different from iTunes. And, according to recent news, many Apple customers have already deemed it obsolete.