Digital & Mobile, News — March 18, 2015 at 3:43 pm

Why Apple Will Dominate The Market With Their New Music Streaming Service

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   The way we consume music is changing. Across the course of three decades the music industry has seen a shift from cassettes to CDs to digital downloads and now, increasingly, we’re having our music streamed to us either through our computers or other digital devices. And, like they have done in the personal computer, smartphone and tablet markets, Apple is set to shake things up again.

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An explosion of adoption rates in smartphones and tablets coupled with increasingly affordable data rates has created a perfect storm for streaming services like Spotify and video streaming sites like Youtube. In Sweden 70% of the music industry’s revenue came from streaming last year and Credit Suisse forecast in 2014 that global streaming-music subscriptions would rise from less than 20 million currently to almost 150 million by 2025. Quite clearly, streaming is mainstreaming.

 

And don’t think this has gone unnoticed by digital heavyweights Apple, Amazon and Google. With all three companies all moving into a marketplace already crowded with a host of competitors like Spotify, Rdio, Pandora, Deezer and Rhapsody, there’s about to be a whole lot more muscle in the market.

global music chart

Google , combining the 30 million songs available in their Google Play library, are leveraging the popularity of Youtube, providing the company with a unique advantage of being able to deliver video content to users. Amazon has launched Amazon Prime which is geared towards American audiences but appears to be more of an ‘add on’ for existing users and a means to sell more physical goods. Spotify, with a user base of 60 million has had the most success in the streaming game so far whilst Deezer, with its international reach has been able to establish a presence across key markets in Asia and South America. Smaller players Rdio, Pandora, Rhapsody and a plethora of other minnows fight over the scraps.

 

Whilst Apple have not released the full details of their plans, rumors of the launch of their own music streaming service have been persistent and some details have emerged over the past 6 months of their plans. After all, they did just make the biggest acquisition in the company’s history last year , forking out a handsome $3 billion to purchase Beats Music. The company, partly founded by Dr. Dre, is primarily known as a hardware manufacturer, their Beats Music technology was making inroads into the music subscription market and no doubt provided an important incentive for the purchase.

 

spotify100 pandora100 deezer1 rdio100
Price 

Ad supported /
$9.99 per month

Ad supported /
$4.99 per month
Ad supported /
$19.99 per month
Free for radio /
$9.99 per month
 Quality

96 – 160 kbps /320 kbps

 64 kbps / 192 kbps ‘high resolution’ CD quality 64 – 192 kbps / 320 kbps
Catalogue More than 20 million songs 1 million songs 35 million songs 32 million songs

 

Where traditionally Apple’s iTunes has promoted music ownership, this is a fundamental change in the paradigm, as they move more towards a music access ‘on demand’ model. It could be argued that the result is the cannibalizing of an existing market, the reality is that as consumers change the way they access their music, this model is already becoming antiquated and eroded by Spotify, Deezer, Rdio and the other cohort of streaming options. As the old adage goes, if you can’t beat them, join them. Or should that be, if you can beat them, do so.

 

And it looks like Apple’s entry into the market will lead to a significant shakeup. Beyond the strength and ubiquity of their brand, Apple has a number of competitive advantages over other rivals in the market that they are able to exploit immediately.

 

Apple’s monstrous catalogue of songs and the ability to transfer existing content from their iTunes platform to a streaming service is the clearest advantage. Established relationships with the recording industry and their corporate muscle gives them the ability to ensure they have some big exclusives that aren’t available anywhere else. Like who? Well, say, a little band called the Beatles. Their catalogue isn’t available on Spotify but has been sold by Apple as digital downloads since November 2010. Existing exclusivity relationships with artists including Daft Punk, Adele, Coldplay and Beyoncé could also provide a big incentive to those not yet convinced of the benefits of a subscription based service.

 

Around 25% of Spotify’s 50 million active users  pay for their subscription service and according to an Apple Watch conference on March 9, more than 700 million iPhones had been sold. The Financial Times are reporting that Apple will include Beats (or potentially a revised version of iTunes) on their newest iOS, giving it a permanent home on the home screens of millions of Apple devices across the globe. If Apple are able to harness a similar adoption rate they would not only  be able to profit significantly but also snatch a significant share of rivals’ user base, with users looking to consolidate into a single application.

 

More than anything else, Apple is insulated from the fallout from a long, protracted, and likely costly battle for supremacy in the streaming space. In glaring opposition to Rdio and Spotify, streaming isn’t the sum total of what the company do. Apple entered the phone, tablet and laptop market late, but made sure they were able to provide a superior experience for users.  Companies within the streaming industry still struggling to make a profit with reports emerging that over 70% of revenue goes to record companies and the rest to cover expensive overheads like hosting and other operational costs.  Apple doesn’t need to worry about where their next pay cheque is coming from thanks to the strength of their mobile and electronics divisions, and are able to wear smaller players down, absorbing losses until they can trim the fat from an overcrowded market.

 

That’s not to say there won’t be hurdles. Negotiations for Apple’s upcoming subscription service have reportedly stalled with record labels insisting that any monthly fee below $9.99 per month would have to be absorbed by Apple. Recording artists like Radiohead and Taylor Swift have pulling their catalogues from streaming services citing concerns about the streaming industry not paying artists sufficiently and how Apple will manage to maintain the profitability of iTunes whilst pushing a subscription model remains to be seen.

 

For now we’ll need to wait until June to see exactly what Apple have in store for their entry into the streaming market but there’s one thing that’s for sure: their presence is sure to be a disruptive influence on the market as a whole.