[This article is courtesy of our sibling Crain Communications publication, Advertising Age, where it first appeared]

By John McDermott, Advertising Age

iTunes Radio, Apple’s answer to Pandora, is set to debut next month with a handful of high-profile brand partners including McDonald’s, Nissan, Pepsi, Procter & Gamble and possibly one or two more brands, according to people familiar with the negotiations.

The deals range from the high single-digit millions of dollars to tens of millions of dollars and include a 12 month advertising campaign to run within the streaming music service for each of the participating brands.

In addition to basking in all the publicity that comes with a heavily-anticipated Apple product launch, the launch partners get exclusivity within their respective industries through the end of 2013. Come January 2014, however, ads on iTunes Radio will become widely available, provided an advertiser agrees to the minimum buy-in of around $1 million, according to sources briefed on the product.

Advertisements on iTunes Radio will come in three forms: interstitial audio and video ads and "slate" ads; interactive display ads that will take over whatever screen the consumer is using. That includes iPhones, iPads, all desktops and laptops loaded with iTunes (including Windows PCs) and Apple TV, the Apple device that brings Internet connectivity and apps to TVs.

Audio and video ads
Users will be served an audio ad once every 15 minutes and one video ad every hour, the sources said. The video ads will only be served to consumers at times when they are likely to be looking at their device screen, such as immediately after hitting play or choosing to skip a track.

For the launch, advertisers will be running ads across all of the devices that iTunes Radio will accessible on (that is, anything that runs iTunes). When the launch goes wide in 2014, advertisers will have the ability to target specific devices for their ads. The cost of iTunes Radio ads will increase with the size of the screen, according to agency executives; iPhone ads will be cheapest and Apple TV ads will be the most expensive.

Some of the launch partners will also be curating playlists that have fewer ads than typical iTunes Radio stations. These branded stations will not be labeled with a brand name, but will most likely involve a short ad saying that brand was sponsoring a user’s block of free listening.

Ad-free option
Of course, consumers can choose to have no ads at all. iTunes Radio will be a free, ad-supported service to the public, but Apple will be offering an ad-free option to anyone who purchases iTunes Match, a cloud-based music storage feature that allows users to access their libraries on any Internet-connected Apple device.

iTunes Radio inventory will be sold via iAd, Apple’s mobile ad network. No surprise then that the debut of the ad-supported iTunes Radio service closely resembles iAd’s 2010 launch; a select few launch partners, high minimum buy-ins and lots of fanfare.

Like most mobile ad networks, iAd has struggled to take mobile advertising market share away from Facebook and Google since then, but iTunes Radio may give it a boost. Whereas iAd only sold display ads, iTunes Radio gives the network more valuable audio and video inventory.

Because iTunes Radio will not allow users to search and play a song on-demand, it’s most immediate competitor will be Pandora, the No. 3 company in terms of U.S. mobile advertising revenue market share in 2013, according to eMarketer. Pandora mobile ad revenue is projected to increase 43% year over year, from $376 million this year to $539 in 2014.

Push to buy
Apple and its music industry partners think that iTunes Radio’s greatest revenue generator will be its ability to get users to actually buy music. A purchase button will be placed next to every song played on the service in an attempt to get users to permanently add title to their iTunes library.

It’s a move against other music-streaming companies’ strategy of allowing users to passively listen to songs interrupted by ads or to charge them a premium for the ability to play songs on demand and listen to ad-free digital radio. Regardless, the caliber of iTunes Radio’s launch partners proves that, at least initially, there’s enough interest in the service to garner attention from some of the most recognizable brands and biggest ad spenders in the U.S.