Apples (NASDAQ: AAPL ) iTunes online music store turns 7 in April. It continues
to control a 70% share of the digital music market, while competitors like
Amazon.com (NASDAQ: AMZN ) and Microsofts (NASDAQ: MSFT ) continue to try to
keep pace. But the music business is changing, as digital sales have begun to
slow. Nielsen Soundscan recently reported that digital sales in 2010 amounted to
$1.17 billion, essentially flat with a year earlier. With no sales growth in an
arena that Apple is already dominating, other companies are exploring new models
to accommodate shifts in the audience. Susbcription-based services like Sonys
(NYSE: SNE ) Music Unlimited, which offer audiences access to a wide library of
songs for a monthly fee, have struggled to find an audience. As The New York
Times recently noted however, it could come down to Internet radio, not exactly
a new idea, that ultimately refuels revenue growth in digital music. The
proliferation of connected portable devices is freeing up Internet radio from
being tethered to PCs, making listeners accessible to businesses and advertisers
in a way they havent been since the 1990s. While there sarent many publicly
traded Internet radio companies, here are four companies investors should pay
close attention to as Internet radio gains prominence in the broader digital
music market. Pandora Media Pandora Radio is todays face of the Internet radio
market. In the decade since its inception as the Music Genome Project, Pandora
Medias customizable radio users enter song titles or artist names and the
service customizes a station based on those choices has emerged as one of the
most convincing models next to iTunes for monetizing music since the physical
media market imploded. The success of its advertising-supported business
(Pandora also offers a paid subscription, ad free option for members) has netted
the service an audience of 80 million registered users. Pandora filed with the
Securities and Exchange Commission for a $100 million initial public offering
last month. A November 2010 report from Ando Media said Pandora controls more
than 50% of all Internet radio listening. Clear Channel As private equity and
venture capital turn their eyes to Internet radio, so has the 800-pound gorilla
of the traditional radio industry. PaidContent.org reported recently that the
media giant would buy Thumbplay Music for what is said to be a fraction of that
companys value. Thumbplay offers a subscription-based service similar to Sonys,
but Clear Channel isnt interested in that business. Its going to leverage
Thumbplays infrastructure to create its own free Internet radio service similar
to Pandora that will act as a flagship for the companys existing iheartradio
service. This aggressive development from Clear Channel demonstrates just how
potent the Internet radio business is in 2011. Spotify Rumors that the popular
European Web-based digital music service Spotify would be coming to the U.S.
have been swirling around the Internet since mid-2009. A note from the company
last month said that an American version of the service would arrive in the
coming months. The question is what consumers will get. All Things D says that
major labels EMI and Universal Music Group are near licensing deals with
Spotify, so content should be assured, but its unknown where Spotify users will
be able to access the service. Its business model in Europe is similar to
Pandoras, with a free ad-supported option and a subscription-based premium
service that costs about $13.50 a month. The subscription service is much more
robust than Pandoras, though, and the free service is tied to PCs. If Spotifys
American debut includes a version of the free service accessible on a number of
mobile devices, it could take off. If its banking on the paid subscription
service, however, maybe not. Google (NASDAQ: GOOG ) All thats known about
Googles foray into the digital music business is that its coming. Some say it
will be a digital download business like iTunes, others say it will be an
Internet-based streaming-only service similar to Lala. A recent report on the
blog Ars Technica suggests that recent rumors imply a mix of the two. Regardless
of the form it will take, Googles music service will be tightly bound to the
mobile operating system Android. Motorola (NYSE: MMI ) CEO Sanjay Jha confirmed
as much at the Mobile World Congress last month, when he confirmed that Android
Honeycomb would feature new music services. While a paid-subscription,
Internet-based service is likely, a free, ad-supported service like Spotifys is
also a strong candidate for Googles broader music strategy. As of this writing,
Anthony John Agnello did not own a position in any of the stocks named here.
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