Having transformed the music business once, Apple is trying to do so again
Jun 13th 2015 | SAN FRANCISCO
WHEN Apple bought Beats, best known for making brightly coloured headphones,
for around $3 billion last year, many wondered what the technology giant had in
mind. They now have their answer. On June 8th, at Apple s annual gathering for
software developers in San Francisco, it revealed a new music-streaming
service, based on one it had acquired as part of Beats. Tim Cook, Apple s boss,
promised that, It will change the way you experience music forever. Others on
the stage called it revolutionary .
Apple led the way in popularising the legal downloading of music, with the
launch of its iPod player in 2001. But as music fans have taken to streaming
songs in a big way over the past few years in effect, renting them rather than
owning them downloads have started to decline (see chart 1). Apple s revenues
from music have started to fade, even as those from apps and other services
have kept soaring (see chart 2). This time it is following, rather than
leading, a musical revolution. Spotify, the most popular on-demand streaming
service, has 20m paying subscribers worldwide, and around 55m who regularly use
its free, ad-supported version.
Apple Music will attempt to differentiate itself from incumbents by having
playlists chosen by people rather than algorithms, and technology that makes it
easier to search for songs. It is marching into the territory of SoundCloud, a
firm that lets unsigned acts promote their tunes to music-lovers looking to
discover the next big thing. It is taking on Google s online-video service,
YouTube, by making it easy to watch music videos. And its offering will include
a new, 24-hour radio station, Beats One . If enough of Apple s existing
customers take to the new station, it could become one of the world s leading
influences on popular music tastes.
Apple s big announcement raises two questions. The first is whether lumping
together so many familiar elements of existing services into one convenient
offering really adds up to a revolution. The second, therefore, is whether
people are likely to pay for what Apple is peddling. Spotify this week raised
more than $500m to help it fend off the challenge. That is a useful sum, but it
is small change compared with Apple s near-$200 billion cash hoard.
Furthermore, Apple already has the credit-card details of around 800m account
holders, and a fan base whose ardour knows no bounds. So it is not hard to
imagine Apple Music quickly overtaking Spotify s 20m paid subscribers, once
people have taken up the three months free trial the firm is offering, and
become accustomed to using the service.
The best things in life are free
Throwing a possible lifeline to Spotify, the attorneys-general of New York and
Connecticut are looking into whether the deals that Apple has struck with
record labels amount to some sort of arrangement to suppress the availability
of free, ad-supported music streaming. This provides a chunk of Spotify s
revenues. Apple, in contrast, has chosen not to offer a free tier.
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For Apple the biggest difference between now and 2001 is that the success of
this revolution will not determine the firm s fate. When it first released its
iPod, Apple was a largish computer-maker with grand ambitions. Fast-forward to
2015 and Apple is now the most valuable listed company in the world. It is not
only a technology company but a luxury brand and a growing payment-services
provider, among other things. Apple Music, in other words, is just one track in
its album.
As for pop stars and their record labels, they should not be celebrating Apple
Music s launch by driving their Rolls-Royces into swimming pools. The fees it
will pay them for streaming will be even more meagre than those they get from
downloads.