A Pandora-like streaming service could have debuted with last week's iPhone 5 launch if negotiations between Apple and Sony/ATV had not failed, according to a published report.
Sony/ATV, which is owned by Sony and the estate of Michael Jackson, wanted Apple to pay a higher fee for each song played than Apple was willing to shell out, according to the New York Post.
News broke earlier this month that Apple was considering the idea of creating a streaming-music service similar to that of Pandora, the online-radio service. Typically, a music distributor will just pay the statutory rate that has been set for playing songs on Web radio and will not have to negotiate with individual rights holders. That's what Pandora does.
But Apple wants to do more with the songs than the statutory agreement covers and this required the company to acquire tailor-made licensing, according to the Post's story.
If you were wondering how Apple planned to compete with Pandora, the front runner in Web radio, this is how: Apple wants to enable users to play a "selected artist more times" than Pandora is allowed to under the statutory agreement, the Post reported.
According to industry sources who spoke with CNET, the music labels are not crazy about Pandora's business model. The service doesn't supply labels with a whole lot of revenue, and managers believe Pandora cannibalizes sales. They have hoped Apple would find a more lucrative way to enter the streaming-music business.
That said, the labels are on board with Apple's plan. They realize that Apple is going to do what it wants anyway and that the company has plans to use the streaming service to promote sales. Insiders say Pandora has a Buy Now button that nobody pushes.
The music publishers, however, are still miffed about what they consider Apple's attempt to bypass them in initial negotiations over 90-second song samples back in 2010, a story first reported by CNET. Apple co-founder Steve Jobs had been preparing to announce extended song samples at a media event, but the publishers raced in and threatened legal action if Apple didn't negotiate a new fee with them.
More important, though, is that music publishers don't like Pandora's model either and don't want to see Apple launch an identical service.
If the publishers aren't careful, Apple's leaders could just decide to pay the statutory rate -- the same fees that Pandora pays -- if they can't close a deal with rights holders. Those rates don't leave much room for profit, but Apple could try to wait the publishers out.
This would mean the publishers would see less money from Apple than the company is prepared to pay right now.
Music sources say the talks continue.
Update: 9:40 a.m.: My Colleague John Falcone notes that in iOS 6, the songs in iTunes Match can now be streamed, just like in Amazon Cloud Player, so that you don't need to download it before beginning to listen.