Apple Taps Omnicom Group for iRadio Ad Revenue

Apple AAPL is reportedly negotiating with Omnicom Group's OMC OMD, among other advertising companies, to secure brand campaigns for its upcoming iRadio service. According to Bloomberg, Apple is making several changes to its iAd business in order to accommodate the launch of a Pandora-style P music service. This is somewhat of a change from iAd's original purpose, which was to provide app developers with a way to make money. Music services aren't cheap, however. Apple will likely pay a significant portion of its ad revenue to record labels, primarily Universal Music Group, Warner Music Group and Sony SNE. In fact, Apple will be forced to pay them (either a flat monthly rate or based on the number of songs that are played -- or both) even if it does not profit from iRadio. Historically, Apple has not aimed to profit from its services. The company's device margins are so high that it can afford to take a loss (or simply break even) selling software and services. iTunes is profitable, but it only accounts for a small portion of the company's overall revenue. It is still an important part of Apple's ecosystem, however. Without iTunes, the iPod would have never become the world's number-one MP3 player. Sales of the iPod allowed Apple to pursue its goals with the iPhone, which later paved the way for a software marketplace called the App Store. Like iTunes, the App Store is not a huge source of profit for Apple -- but it ensures that millions of iPhones and iPads are sold every year. Many (including Bloomberg's sources) believe that Apple will not charge a dime for iRadio. However, it is not yet known if the service will be exclusive to Apple devices (like the App Store) or if it will be offered to Windows PC users, a la iTunes. Apple could feasibly offer iRadio for free to those who use an iDevices and charge a small monthly fee to those with an Android phone. With so many free alternatives, however, most Android users would probably skip the Apple option. Thus far, consumers have been relatively accepting of free music services that are paid for with commercial breaks. Spotify, for example, has 24 million users -- 18 million of them endure advertisements to avoid paying a monthly fee. Pandora, the world's most popular online radio service, has 200 million registered users. A whopping 70 million of them are active every single month, providing the company with a strong base of regular listeners. iTunes, however, can reach 400 million users. This could give Apple a massive (and instantaneous) advantage if and when it launches an online radio service. Louis Bedigian is the Senior Tech Analyst and Features Writer of Benzinga. You can reach him at 248-636-1322 or louis(at)benzingapro(dot)com. Follow him @LouisBedigianBZ