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iHeart MediaAs iHeartMedia gears up for its showpiece music festival in Las Vegas this weekend, the company is readying another big event: the announcement of its own paid on-demand streaming service, a source confirms. The launch is expected early next year.

The service is said to be modeled similarly to those announced by Pandora and Amazon last week with two tiered options: a $5-per-month ad-free radio service, which could be labeled “Plus”; and a $10-per-month on-demand streaming service. The news was first reported by the New York Post.

“They have to do it,” says one person close to the situation. “Being a radio network just doesn’t cut it anymore.”

 

Still, there are plenty of obstacles for iHeart in the on-demand streaming space that is becoming crowded with both established services like Spotify, Apple Music, Google Play and Tidal and newcomers in SoundCloud, Pandora, Amazon and Deezer’s U.S. launch. First is differentiation, which the Post reports will include an option for offline listening, with other options being discussed.

Second, and arguably most importantly, would be securing licensing deals with labels for its on-demand service, rights that differ from those the company already maintains for its online radio stations. Those discussions are ongoing and not yet complete, though one major label source says at least one deal is close, if not already done.

Then there is the obstacle of converting its users to the paid service. In April, the company’s free digital streaming service iHeartRadio passed 85 million registered users since its 2008 launch — a figure that does not break out how many of those are active monthly listeners — and listening hours grew 33 percent in the first quarter of this year. Those numbers suggest that its free app is still growing, and while paid streaming subscriber numbers continue to explode, iHeart will face the same challenges as Spotify and Pandora in converting free users to paid options.

But the company’s $20 billion dollar debt is still its albatross, with interest alone on the bill estimated to cost $1.8 billion in 2016. And historically streaming is, so far at least, not a profitable business, with the likes of Spotify and Pandora struggling to turn a profit.

Despite iHeart’s strong terrestrial radio business — which boasts 850 radio stations around the country — the move online by most consumers, as well as the increasing adoption of streaming as the dominant music consumption model, means the move makes sense. And it could signal a similar move by Sirius XM, which entered negotiations with labels a few years ago that ultimately didn’t move forward.

For now, iHeart has its work cut out if it wants to carve out its own piece of the on-demand streaming sector. But as a second source close to the situation puts it, “To stay in the ‘digital’ game, [iHeart is] going to have to do that at some point.”