Apple's iTunes Radio turned out to be a giant flop and iTunes downloads are down as well. These alarming facts might be the main reasons Apple acquired Beats Audio for $3.2 billion.

Apple wants to remain competitive in the music discovery experience, which includes searching for, downloading and streaming songs. Because of this, Apple and Beats Audio will be teaming together to try and compete with Spotify and Pandora.

"Several industry insiders and commentators believe the Beats deal is partly prompted by Apple's desire to get in to the subscription streaming space as download sales tumbled more than 13 percent in the first quarter and continued to shrink," reports Billboard. "Apple's iTunes Store is the leading digital music store in the United States, with more than 70 percent of song and album download sales." 

Currently, Beats already has a reported 10,000 subscribers to its $15 a month unlimited music downloading service and a partnership with AT&T. Beats offers an interactive streaming service and partnering with Apple, it could get a lot better.

That pales in comparison to Pandora's 76 million monthly users, though. Beats has been good to record labels and hasn't created as much tension as Pandora has with artists and labels. This could put them in a good spot in the future.

Like Spotify, Beats' service is $9.99 per month for streaming music with no advertisements. With 9 million users worldwide, Spotify doesn't have the name brand appeal that Apple and Beats do, but could the new service sway these users away from Spotify?

It would make sense for a major player like Google, Amazon or Apple to just buy out Spotify, but for now that isn't happening. Spotify, valued at over $8 billion, is hinting at going public and filing for an IPO.

Apple has to keep an eye on Spotify and Pandora. With Beats, Apple has the groundwork to make a much better streaming radio experience than iTunes Radio.