Reportedly, Apple (AAPL - Free Report) is planning to expand its iTunes based radio service to overseas markets, particularly in English-speaking territories such as the United Kingdom, Canada and the Nordic countries by early 2014. Apple expects to expand the service eventually to 100 countries, although it did not specify any timeline.
Apple released its music streaming service iRadio with its latest iOS7 mobile operating system on Sep 18, which attracted more than 11 million unique listeners within a week’s time. The iRadio service is designed along the lines of Pandora’s (P - Free Report) service, which allows users to create stations based on songs of their choice (including Twitter trends), which they can also share with friends.
Apple’s move to international territories is aimed at expanding its English language subscriber base, which will attract more advertisers. The expansion of iRadio service will help Apple to counter strong competition from domestic market leader Pandora as well as other providers such as Sirius XM (SIRI - Free Report) , Spotify, Radio Inc. and Google .
Apple is set to launch iRadio in Australia and New Zealand early next year. However, Pandora already serves these countries based on its partnerships with government entities.
According to Bloomberg, Apple’s partnership with the likes of Universal Music Group and other musical groups enables it to easily launch the iRadio service in international markets. This is a major competitive advantage for Apple as Pandora does not have a similar kind of agreement with music publishers.
Although Apple is expected to face competition from local providers, we believe its superior brand value and the partnerships with music companies will help it to penetrate the international markets at a much faster rate than its competitors going forward.
We also believe that Apple will eventually launch its iRadio service in other languages such as Chinese and Portuguese, which will enable it to penetrate the huge non-English speaking customer base over the long term.
We note that Pandora enjoys a first mover advantage in the music streaming industry in the U.S. Pandora’s already popular service (approximately 72.7 million users), driven by its effective discovery engine and well-established infrastructure, will provide significant competition to Apple in the near term.
However, international expansion will be a major growth catalyst for Apple over the long term. In this regard, we believe that along with Pandora, Google can be a major competitor of Apple’s iRadio in the international music streaming market going forward.
Currently, Apple has a Zacks Rank #2 (Buy).