One of the next big “things” from Apple Inc. (NASDAQ:AAPL) is going to be its iTunes Radio service, an advertising supported radio scheme similar to Pandora Media Inc (NYSE:P). Sony Corporation (ADR) (NYSE:SNE) is rumored to have been the last industry holdout, winning it an above-industry ad cut.
Apple Inc. (NASDAQ:AAPL) has been looking for the next big tech gadget for some time, and hasn’t found it yet. Instead, it is shifting more toward services. A big one is going to be a me-too service that will stream music over the web. Being a copycat isn’t a bad thing because the company can automatically put the advertising-supported service on every device it sells.
That will create an instant customer base for the free service. It also creates a valuable showcase for music that can be purchased, likely with a convenient link, through the iTunes store. Bloomberg quotes NPD Group as saying that Apple Inc. (NASDAQ:AAPL) has over 60% share of the music downloading market. So, adding an Internet “radio” service is a great way to try to boost that share.
According to Bloomberg, the big holdout for the iTunes Radio service was Sony Corporation (ADR) (NYSE:SNE). The company has a massive collection of music and was rumored to be given a 10% share of the ad revenue surrounding its content. That’s more than twice the average in the music streaming sector. It shows the value of Sony’s content in a changing online world.
It also helps explain why hedge fund activist Daniel Loeb is pushing Sony Corporation (ADR) (NYSE:SNE) to break its business into a content company and an electronics company. That said, it also shows why such a move would be ill advised. Sony is set to launch PlayStation 4, which should help position the company in customers’ living rooms. It needs a deep content bench if it wants PlayStation to move beyond gamers to become a family entertainment hub.
Sony Corporation (ADR) (NYSE:SNE) shares have been moving higher since Loeb started lobbying around, but are well off their all-time highs. The company still has a lot of work to do to turn the business around, but now could be a good time to jump aboard for long-term investors and those seeking a turnaround play. The iTunes Radio deal is just one more example of the company’s content strength.
For Apple Inc. (NASDAQ:AAPL), the iTunes Radio idea extends its ecosystem. It isn’t likely to be a game changing offering, but it keeps customers in the Apple sphere of influence, while at the same time, provides the company with a new revenue stream. That’s a good thing since concern about the top line has resulted in a notable share price decline over the last year or so.
Although the company’s new dividend policy, debt issuance, and share buyback plans hint at a change in its self perception, that doesn’t mean it is a bad investment. In fact, with a yield of around 2.80%, the shares should have a pretty solid floor under them. Sales, meanwhile, are still quite strong and the company is robustly profitable.
Investors got carried away when they drove the price up to $700. However, the shares appear reasonably priced today. Growth and income investors should take a look.