Apple already has iTunes Radio, but it’s hoping to go further in the direction of on-demand music, according to a report in Billboard that cites “three people familiar with the talks” between Apple and music labels.
To be clear, Billboard describes these as “exploratory talks,” so it doesn’t sound like anything is definite. Citing Nielsen SoundScan, the article also points to double-digit declines in iTunes music sales in the United States as big reason for these discussions.
At the risk of stating the obvious, iTunes Radio allows users to listen to a range of Internet radio stations (similar to Pandora), while an on-demand service would allow you to listen to the songs you choose when you choose (similar to Spotify). Apple has been reportedly been developing new mobile ad technology with a focus on iTunes Radio, so a new music service could also be a way to create new ad inventory (though presumably there would be paid component, too).
I’ve emailed Apple for comment. If the company responds (it won’t), I will update this post.