- Apple mis-timed their entry into the music streaming business.
- Spotify's paying subscribers dwarfs Apple's.
- There are still opportunities available to Apple in this rapidly growing market.
- Music streaming adds to Apple's bottomline, but is unlikely to be a game-changer.
In the tech world timing is everything. And one wonders why Apple (NASDAQ:AAPL) stood aside and watched Spotify dominate the online music market. iTunes sales have been on the decline for a while now. According to the Atlantic, iTunes music sales declined by 13% between 2013-2014, while streams increased by 54%. And with widening access to superfast broadband, expect the number of streams to increase.
The late arrival of Apple Music into the marketplace is another bullet point in a growing list of late entries by Apple. For instance, the iPad Pro arrived 3 years after the release of the Surface Pro, and the Apple tv only just added gaming capabilities- a market it should have captured years ago due to the millions of games on Apple’s app store.
The new revenue stream for the music industry
Evidence suggests that music streaming is the new model for the music industry. Although some labels and artists are unhappy with the miniscule rates per stream, this is something they will just have to deal with. From a consumer’s perspective, it makes financial sense to pay for an unlimited music streaming subscription rather than buy individual albums. At the end of the day, they get access to millions of songs,. and can stream albums on the day they are released.
The issue is that Spotify’s growth would have been stunted if Apple had entered the streaming market years ago. As previously touched on, it seems like Apple’s ability to foresee new opportunities is waning. It used to be the leader in this regard; however, it now looks to others to take the first mover risks.
Big player: Spotify
According to Spotify’s team, Spotify now has 75 million subscribers with 20 million of those being paying subscribers. On the other hand, Apple have been slippery in providing concrete data for their Apple music offering. According to Apple, 11 million people signed up for the 3 month trial, of which 79% have been ‘retained’. In this context, ‘percentage retained’ is fairly ambiguous. Was it the percentage of people who still have Apple music on their phone, or the percentage of users who have signed up for the subscription. Apple declined to comment when contacted to provide more data on the figures.
Interestingly, the timing of Spotify, Rdio, and Deezer’s entry into the market was practically impeccable. Broadband and wifi speeds were on the rise, which allowed the music streaming industry to exist in the first place. Spotify is now well established in the space.
The fact that Spotify has a free ad-supported tier has been integral to its success. By giving consumers a ‘taste’ of what is on offer, they are likely to want an experience which does away with ‘annoying’ audio ads. On the other hand, Apple music doesn’t offer a comparable option. After the free trial is over, one must pay to enjoy their tunes.
It is also worth noting that as time elapses, any streaming service, no matter how well-present and intuitive, will struggle to penetrate the market. People have already created playlists on Spotify, followed friends, and gotten used to the interface. As a result, the costs of moving to a streaming service with very similar features might negate any benefits.
The Apple opportunity
Apple Music is still an extra source of long-term revenue. Apple knows that their brand name will still get people to atleast give their service a try. Plus, with aggressive plans to establish a stronger presence in China, this is an opportunity to establish in a country with less competition in terms of music streaming services.
The opportunities for Apple to use their music streaming platform to create unique experiences for consumers is vast. For example, they could have subscriber-exclusive concerts or bundle a 6 month subscription with new products as a sort of ‘bait’.
Despite their shortcomings in this area, Apple stock is still a solid buy-stock. However, don’t make the mistake of buying Apple because you think their music offering will add considerably to the revenue or the bottom line. It won’t. This is just Apple mopping up some market share, of which they could have had a larger share if they had arrived earlier.