At their annual Worldwide Developer’s Conference in San Francisco, Apple unveiled iTunes Radio, a new free Internet radio service that streams digital music over a data connection rather than storing songs on devices.

The new service is free with advertisements or ad-free for iTunes Match subscribers. It comes preloaded into iTunes on Mac or PC, Apple TV and Apple devices.

Apple was able to sign special licensing deals with the three major music labels (Sony, Warner Music Group and Universal Music Group), which are said to be the largest since the original launch of iTunes itself.

iTunes Radio offers users more control and interactivity than what is currently allowed by Pandora and other streaming radio or on-demand subscription music services such as Google All Access, Spotify, Rhapsody, Rdio, and Grooveshark that all pay government-mandated rates to record labels, according to Apple.

Apple compensates music labels about half as much per song as the standard rates, but intends to make up the cost by sharing ad revenue and seamlessly linking listeners to buy songs on iTunes and a secret-sauce algorithm for better music discovery. Other streaming music services permit saving tracks to mobile devices for playback without Internet connectivity usually for a monthly fee of around $10.

Despite the crowded streaming music market and the variety of online services available to consumers, no one company has successfully overcome the business model challenges. While Apple does currently dominate the music retail market, those hopeful that iRadio will become instantly popular should remember Ping, Apple’s social network for discovering songs that got axed because of lack of interest, in addition to their unreliable iCloud service for synchronizing music and user data across devices.

Additional announcements made by the Cupertino, California-based technology giant include updated versions of their Mac OS X operating system (named “Mavericks”; no more cat product names like “Snow Leopard”) for laptops and desktops, as well as a newly designed version of their mobile operating system (iOS 7) for iPhones and iPads.