Apple Inc. (NASDAQ:AAPL) was silently reported a few months ago that it was about to launch a music-streaming service that was likely to be a direct competitor to Pandora Media Inc. (NYSE:P). It was due to be on the iPhone 5 when it launched a couple weeks ago and it was going to add an “human element” to music streaming that put it above and beyond the algorithm that Pandora Music Inc. (NYSE:P) uses for the music it plays.
However, on the way to presenting the new music service, Apple Inc. (NASDAQ:AAPL) could not get cooperation from Sony/ATV, with which Apple was negotiating streaming rights and licensing for the 2 million copyrighted songs that Sony/ATV and its subsidiaries own. The normal rate per stream had been fractions of a penny per song, but apparently word is that Sony/ATV was asking a higher rate – perhaps because of the desires of Apple Inc. (NASDAQ:AAPL) to have the opportunity to raise the limit of streamings of certain artist’s songs.
Apple Inc. (NASDAQ:AAPL) was shooting for a service that would be used as promotion for the music companies, essentially allowing the companies to push an artist or genre during any particular month, and those streams of music would lead users of the music service to the iTunes store for sales of the songs and albums on behalf of the music labels, according to a story in the New York Post. Apple Inc. (NASDAQ:AAP), because it wanted to run a “souped-up” streaming service, it has had to work with individual copyright holders rather than working through ASCAP and BMI – the main copyright associations in the music industry – and Sony/ATV is one of the individual copyright holders. Thus when discussions with Sony broke down, Apple Inc. (NASDAQ:AAPL) would have released a subpar service.
Now, if the service is to launch at all, Apple Inc. (NASDAQ:AAPL) will likely present it as an iOS 6 update sometime in the future. Th0ugh there is no word whether negotiations are ongoing or have stopped altogether. If this falls through, should Apple Inc. (AAPL) continue to pursue the service, or look into a possible M&A of current services? How do you think Apple investors – like billionaire fund manager David Einhorn of Greenlight Capital – should react to this news? Will it matter in the short- or long-term?