Apple Inc. and major music labels have intensified negotiations to start an advertising-supported Internet radio service by early next year, according to people with knowledge of the talks.
Talks are centered, in part, around how to share ad revenue, and a deal could be reached by mid-November, with Apple starting a service within the first three months of 2013, said the people, who asked not to be named because discussions are still in progress.
Separately, Apple Thursday afternoon reported profit that missed analysts' predictions as customers held off on iPad purchases before the release of a new model.
With sales of music downloads slowing, Cupertino, Calif.-based Apple and record companies are seeking new ways for customers to discover and buy digital music. To challenge Pandora, Apple is seeking licensing pacts with labels that allow more flexibility about what listeners hear. Pandora relies on a compulsory license that limits how often users can skip tracks and how many times an hour an artist can be played. Apple is also seeking earlier access to new releases.
Shares of Pandora, based in Oakland, Calif., fell 11.73 percent to $8.20 Thursday.
Executives from Vivendi SA's Universal Music Group, Warner Music Group, and Sony Corp.'s music division visited Apple's headquarters in recent weeks to learn more about its radio plans, the people said. Apple, the world's biggest music retailer, with more than 400 million iTunes accounts, wants listeners to be able to buy tracks as music streams or revisit what they've heard in auto-generated playlists, they said.
Tom Neumayr, a spokesman for Apple, declined to comment, as did representatives for the record companies. Mollie Starr, a spokeswoman for Pandora in Oakland, declined to comment on the terms Apple is seeking from record companies.
Apple's profit rose to $8.22 billion, or $8.67 a share, in the fiscal fourth quarter. Apple sold 14 million iPads, fewer than the 15.3 million predicted by analysts in a Bloomberg survey, as customers delayed buying old versions before the release of the iPad mini in the current quarter.
Apple shares rose 36 cents to $609.90 in after-hours trading after the earnings news.