Apple, already dominant in digital music with its iTunes store, is negotiating with major record labels for content for the service, the sources, who asked to remain anonymous during the private negotiations, told the Times.
The radio service, most likely to take the form of a pre-installed app on devices like iPhones and iPads, would go up against Internet radio services like Pandora and Slacker.
Apple is negotiating direct licenses with record labels that would give the company more flexibility in using their music, unlike the other services that operate under limited licenses that constrain their offerings, for example limiting the number of times an hour songs by particular artists can be played, the Times reported.
Some analysts questioned Apple's plans, saying Internet radio revenue was too small for Apple to bother with, and noting established players like Pandora already provide similar services through apps on Apple devices.
"What's in this for Apple?" Michael Pachter, an analyst at Wedbush Securities, said. "Pandora already does a great job, so does iHeartRadio, so does Last.fm. Why do we need another one?"
2014: The Year in Music [PHOTOS]