The Rest of the World Will Have to Wait for Apple's iTunes Radio

June 10 (Bloomberg) -- Eddy Cue, Apple Inc.’s senior vice president of Internet Software and Services, introduces iTunes Radio, which will be built into iTunes on all Apple devices. He speaks at Apple's annual Worldwide Developers Conference in San Francisco. (This is an excerpt from the event. Source: Bloomberg)

ITunes Radio, the streaming-music service Apple announced yesterday at the company’s developers conference in San Francisco, is set to hit the digital airwaves this fall. But the feature will only be available in the U.S. at first, leaving the rest of the world radio silent.

Apple’s service works a lot like the one from Pandora Media. Users can select stations based on the musicians, songs or genres they like. There are also featured stations based on popular music, including what’s trending on Twitter, and ones tailored to the user based on their listening and iTunes purchasing habits. (This is different from the radio-like Genius feature, which creates custom playlists just from music stored on your device.)

While choosing to launch in Pandora’s home court is a direct challenge to the popular streaming music service, it's also a missed opportunity. Pandora can only be used in the U.S., Australia and New Zealand right now. If Apple went global from the get-go, iTunes Radio could build a base in the markets that will be important to Pandora’s future. Instead, Apple is playing catch-up.

Pandora has been among the most-used software for the iPhone since the App Store opened its doors in 2008. That fact is not lost on Eddy Cue, Apple's senior vice president of Internet software and services. Apple won the war for music-download stores, but new markets have emerged for personalized radio and subscription-based all-you-can-stream access such as the services offered by Spotify.

Apple had many of the pieces necessary for advertising-supported radio. The company already has the sales force to work with advertisers looking to fill listeners’ ears, and the company is refocusing iAd staff to support iTunes Radio. Apple could also upsell users to iTunes Match, a $24.99 per year subscription that will remove ads from iTunes Radio in addition to syncing downloaded tracks across devices.

ITunes Radio does things that competitors can’t do, such as accessing Apple-exclusive tracks, and integrating with Siri and the Apple TV. Because Apple’s radio service is built into iTunes and the Music app on its mobile devices, it has more data about users that will be used to tailor recommendations, and may help with converting the millions of iTunes users to radio. (That strategy hasn’t always worked in the past. See: the now-dead social network Ping.)

Although going head to head with Apple is a scary proposition for any company, shares of Pandora actually rose 2.5 percent yesterday at the close in New York. Pandora has a lot to feel good about: Its apps are available on Android, the world’s most popular smartphone operating system, on any computer with a Web browser, as well as on many television set-top boxes. ITunes Radio is limited to Apple’s own product ecosystem.

“This is a nice free feature that lots of people will probably try out,” Jan Dawson, an analyst at Ovum, wrote in a research note, “but existing Pandora users won’t have much reason to switch.”

In Apple’s announcement yesterday, executives didn’t lay out any expansion plans for iTunes Radio beyond the U.S. Cue said only, “We’ll be adding other countries over time.”

To give an idea of where it could end up eventually, Apple’s 3-year-old iTunes Match program is available in more than a hundred countries. Spotify, which also has a personalized radio feature, can be used in 20 countries as of now. Expect these digital radio rivals to pump up the volume.

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