Will Apple Take Down Pandora?

Apple (NASDAQ:AAPL) is working on developing a Pandora (NYSE:P) rival in a move that could have the Internet radio industry very worried. Apple, which already has digital music figured out through its iTunes, is now planning to send streams of music customized to users’ choices through a preinstalled app on the company’s mobile devices. It is already negotiating with major record labels, The Wall Street Journal said.

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If Apple were to launch a service like that, it would be directly competing with Pandora, Slacker, Clear Channel Communications’ (NYSE:CCO) iHeartRadio, and somewhat indirectly with the Sirius XM (NASDAQ:SIRI) satellite radio.

However, in an attempt to differentiate itself, Apple is working on acquiring direct licenses with record labels, which would give it more flexibility in how it uses the music, and get rid of restrictions faced by current services. Apple plans to offer advertising and either share part of the revenue with labels or pay them other licensing fee. It’s not clear whether Apple will offer the service for free, or adopt Pandora’s freemium model.

While the company is widely expected to launch its new iPhone in the coming week, it is unlikely that the new service will come alongside the new device considering how long licensing talks can usually take.

While some analysts are surprised that Apple would make an attempt to enter a relatively small business — Internet radio accounts for less than $1 billion a year in revenue — others are of the opinion that the company may be looking to rebuild its clout in music. Apple first entered the music arena through its iPod in 2001, but consumers are increasingly using services like Spotify to stream music over the Internet rather than purchasing it.

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