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Today in Social

Apple seems to be negotiating directly with music rights holders so it could offer a Pandora-like streaming music radio service. Several pundits wonder why. Pandora runs nicely on iPhones and tablets, and Pandora can’t make money, they say. Pandora spent 54 percent of its revenue on music royalties last fiscal year, and that figure will go up, due to an increasing royalty rate and Pandora’s struggles to charge high rates on mobile advertising. But people are missing the point. Even if royalties hover around 60 percent of revenue, Apple will could make good money off of a music service. Pandora’s not profitable because it’s spending boatloads of money on marketing – customer acquisition costs and its ad sales force. If Apple bundled a music service with iPhones, iPads and Macs, it would have close to zero customer acquisition costs and could still probably convert 3 to 5 percent of free users to a premium subscription service. (Steve Jobs hated subscriptions.) It could license a recommendations engine from someone like The Echo Nest to limit R&D, and maybe even integrate some of the Facebook data it’s going to weave into iOS for social recommendations. Sounds like a slam dunk to me.