Why Apple's plan for a streaming radio service is starting to fray

Earlier this week, it was widely reported that Apple was partnering with Beats Audio to build a new streaming music service to rival the Pandoras and Spotifys of the world. For Apple, such a service would serve as a sparkling new revenue channel on iTunes; for Beats, the partnership represented an entryway into the lucrative marketplace for digital goods. Things were looking good.

On Thursday, however, the rumored plans for iRadio reportedly hit a snag. According to the New York Post, Apple is apparently lowballing record labels for rights to their music, offering 6 cents for every 100 songs streamed — about half of what Pandora pays. For comparison:

• Pandora pays 12 cents per 100 songs

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• iHeart Radio pays 22 cents per 100 songs

• Spotify pays 35 cents per 100 songs (the highest rates in the industry)

In other words, says Kyle Wagner at Gizmodo, "Apple is being a massive cheapskate."

According to insiders, the original plan entailed debuting iRadio alongside the iPhone 5 last year, but that scheme quickly unraveled when the industry's top music publisher, Sony/ATV, refused to cooperate. Sony/ATV demanded an upfront fee and a percentage of Apple's intended ad revenue in addition to streaming fees. Now, led by chief negotiator Eddy Cue, Apple could be looking to fold iRadio into iTunes Match, a digital locker for customers to access their music from all their devices at a cost of $25 a year.

For all of Apple's successes, building an ancillary music product to supplement iTunes has presented a rare stumbling block. Remember: The company fumbled Ping — Apple's attempt to build a social network around musicians — which was quietly killed last September. And while negotiations for the rights to stream music content are still ongoing, Apple could be feeling external pressure to hammer out a deal soon. Google is said to be closing in on a similar deal with music labels to build its own streaming music service via YouTube.