Rumours of an Apple streaming music service have circulated for years (at least since 2008, according to our archive). Surprisingly it has taken the company until this summer to launch the service. This may be in part due to the music market and the potential for streaming music. Apple has wisely let the competition break open the market and will now take advantage of the momentum to make its own mark. Music rights also play a big role in its plans. Its significant position in the market should make it easier to negotiate, both the major labels (Universal, Sony, Warner) and the independents. A small problem arose when Apple announced it would not pay royalties to artists during the free trial period offered to customers. Apple was forced to back down on this after Taylor Shift called on the company to pay independent labels also during the free period. Nevertheless the company is reportedly paying only 0.2 cents per stream, while Spotify pays 3-4 times this.
The market
The competition counts a handful of players, each with a slightly different business model:
- YouTube. Somewhat the elephant in the room, but offers free access (with ads) to a wide range of music. An ad-free, paid version (Music Key) is in development.
- Google. Google Music launched its own free streaming service (with ads) in the US. This is more of a radio service, similar to Pandora. A paid streaming service without ads and cloud storage for the user's own music library is also available on Google Play in multiple countries.
- Pandora. Internet radio with 200 million registered and 80 million active users in the US.
- Spotify. The Swedish company uses a freemium model, offering a limited free service with ads and a paid subscription. Sony is a reseller. The free service has 75 million users, and the subscription service counts 20 million. The three major labels reportedly own 15-20 percent of Spotify.
- Deezer, Rdio and Napster/Rhapsody offer services similar to Spotify.
- SoundCloud. More targeted at artists, who can upload their own music to the site. Access is free for listeners. The service On SoundCloud provides advertising income, but only in the US. SoundCloud claims 175 million unique users per month, of which 40 million are registered. Around 12 hours of music are uploaded every minute, and 100 million tracks are available.
- Amazon Prime Music. This is an add-on for Prime subscribers in the US. In addition to free delivery from Amazon, users have access to music and video streaming and unlimited photo storage, all for EUR 99 per year. The music catalogue is limited, at just 1 million tracks, all at least six months old.
- Smaller providers include Pono and Tidal, offering premium services with higher audio quality.
Apple
Apple offers only a paid service, initially for iOS and later also for Apple TV and Android. The offer includes around 30 million tracks at 256 Kbps for USD 10 per month (also likely GBP/EUR 10). A family subscription is available for USD 15. It comes with the internet radio service Beats 1 delivered by well-known DJs and a social network for artists to share information with fans, called Apple Connect. The new single from Pharrell Williams will be available exclusively on Apple Music. Taylor Swift, who earlier removed her music from Spotify, will release her latest album on Apple Music. The service is offered free the first three months after users register.
Apple's model sides with the music publishers, who don't appreciate free services. However, we note that:
- Free services also generate revenue, from advertising.
- Free music is a given, notably on YouTube. It is naive to suggest that everyone should become a subscriber, like Alexander Ljung from SoundCloud recently said in an interview.
- A free service is a good practical step towards an eventual paid subscription, as Spotify has shown.
All together, Apple Music is certainly no 'slam dunk'. Apple has of course its brand and installed base to ride on, as well as an affordable family plan. But especially the free services, like YouTube and Spotify, are formidable competitors. It's not certain the benefits on Apple Music are enough to tempt consumers away from the competition. Spotify is not sitting still, innovating with new features regularly (and offering better audio quality). Nevertheless, the rival services will likely see a dip in revenues due to the free trial offered from Apple. Only once users have to start paying monthly will we see how much damage there is. Especially the small providers will likely find it difficult and may be pushed out of the market.
