Here's What Local Ads For iTunes Radio Could Mean For The Digital Radio Business

iTunes once upended the music industry. Now it too is pivoting as music listening habits change once again.

People are increasingly listening to music via streaming services and that's causing revenues from digital music downloads to fall off.

This is likely why Apple is focusing on its streaming iTunes Radio service and getting set to introduce targeted local ads for the service later this year, according to a report by The Information. In an effort to bolster iTunes Radio's content library, the company also plans to add content from local broadcasters.

Over the past few months, BI Intelligence - the tech industry research service from Business Insider - has noticed Apple steadily beefing up its iTunes Radio ad sales team. Last winter, the company added former Cumulus Media sales executive Michael Pallad to its roster of iTunes Radio employees, and the company redirected its iAds mobile ad sales force to focus its efforts on the streaming radio service. Apple charges between $1 and $10 million to advertise on the radio service, according to AppleInsider.

We think Apple's recent $3 billion acquisition of headphone maker and streaming music service Beats may help the company unlock the potential of iTunes Radio.

Underlying the ground shift in how people listen to music, and how digital media companies make money from that listening, is steadily shrinking U.S. radio advertising revenue. BI Intelligence forecasts that revenue will fall from $13.4 billion in 2013 to $11.2 billion in 2014 (see chart below). Some of these losses will be picked up by online-only streaming music players, like iTunes Radio and Pandora. Unlocking local radio dollars will be key if internet radio is ever going to get beyond the relatively small number of brands that make national radio ad buys.

Pandora pulled in an impressive $521 million in advertising revenue in 2013, up 45% over the previous year.

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