Apple planning drastic iTunes revamp to fight off competition from Pandora and Spotify

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Apple is considering a dramatic overhaul of its online music store, Billboard reported Wednesday, to combat slowing sales on iTunes in the face of the growing popularity of music streaming services like Pandora and Spotify.

The Cupertino company had been banking on improved sales via its new iTunes Radio streaming service, but it’s claimed that only around 1 to 2 percent of listeners are clicking through to the store to purchase tracks.

iTunes Radio, which launched last September as an ad-supported offering, has grown quickly to become the third most used music streaming service in the US after Pandora and iHeartRadio, but its failure to entice music fans to hit the buy button appears to have become a source of serious concern for Apple executives.

According to individuals familiar with Apple’s internal operations, the company is having trouble holding onto some of its most highly prized customers.

“Two-thirds of its high-value customers are now in subscription services,” the unnamed source said. “That has been an eye-opener for them.”

So far this year, digital album sales in the US are down 13 percent on the same period last year, while digital track sales have dropped 11 percent. In contrast, revenue from music streaming services is on the rise.

On-demand and Android

In a bid to turn things around, the tech giant is reportedly considering an on-demand streaming service (iTunes Radio currently serves up tracks based on a user’s music tastes), and is even looking at the idea of launching the iTunes store for Android devices.

The question over whether to launch iTunes for Android is similar to the one faced by the Apple team over 10 years ago when it finally decided to bring the then Mac-only store to Windows PCs. It was clearly a tough decision for the company, with late Apple boss Steve Jobs announcing the move with the words, “Hell froze over.”

Of course, it was Jobs who also said he wanted to destroy Android after he claimed maker Google had copied elements of iOS in its design. Today, however, Tim Cook steers the ship, and the fact that Android is now on more than half of the world’s smartphones may leave him feeling he has little choice but to launch an iTunes app for the rival mobile operating system.

Urgent

We first heard last month that the Cupertino company was looking at ways to revamp the iTunes store, though Billboard’s latest report suggests it is now seen as a matter of urgency among Apple executives as consumers move increasingly toward on-demand music streaming services instead of purchasing downloads.

One record label executive told Billboard that the decline in the music download market “seems unstoppable,” claiming Apple has “no choice” but to launch an on-demand subscription-based music streaming service in order to remain relevant in the online music market. It’s thought such a service would run alongside iTunes Radio, while users would still be encouraged to click through to its online store to purchase tracks, providing Apple with three revenue channels.

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