Apple launched iOS 8.4 yesterday, the major piece of it being the long awaited and highly publicized Apple Music service. While iTunes dominates digital music downloads, Apple did not offer a streaming service until 2013 with iTunes Radio. iTunes Radio took advantage of Apple’s 30 million song catalog and was integrated with the Music app on iOS and into iTunes on the desktop, but did not seem to set the world on fire competing with Pandora, Slacker, Rdio, and especially Spotify. Other entrants from competing platforms include Samsung’s Milk, Google Play Music, and Microsoft’s Xbox Music. Needless to say, there are a number of choices for streaming music.
Rapper Dr. Dre and record exec Jimmy Iovine achieved great success with Beats headphones, a fashion consumer electronics product, driving the headphone, speaker, and Beats branded audio systems business to revenues of $1 billion plus in the space of 8 years, despite the fact that Beats headphones are overpriced garbage. They moved into music streaming by buying out the assets of MOG, a well regarded streaming service that did not achieve high paid subscription levels competing with the likes of Spotify. MOG was rebranded into Beats Music and re-launched in 2014. Amid rumors that Beats sought to raise additional growth capital in an IPO, in May 2014 Apple announced that it was acquiring Beats for $3 Billion in cash and stock. It was Apple’s largest acquisition in its history, and began speculation about Apple’s plans for Beats music and the hardware business. Many speculated that a large part of the value Apple paid was to get Iovine’s contacts and clout with the music industry to hammer out the deals that could help Apple launch something that could better compete with Spotify.
This brings us to Apple Music. The service launched yesterday with Apple’s huge music catalog, and is deeply integrated into the music app on IOS and desktop iTunes. In this case, Apple is going cross platform offering access to the service on Windows, with an Android app to come in the fall. One of the unique features include Beats 1, a “global and live radio” station. Apple is also taking a cut at social again in this version of Music with Connect, after abandoning the failed iTunes Ping in 2012. But the major piece of what Music does is blend your own iTunes library with the rest of the cloud based catalog. Apple reportedly has 300 actual humans curating playlists by genre and mood, as opposed to more algorithmically derived playlists. Music borrowed some of the Beats music app UI that presents genres and artists for you to select in bubbles, one tap for like, two taps for love. After going through a series of these selections, you can then go to the New tab and pull down on the screen (the typical IOS update gesture) and get new playlist recommendations based on your tastes. Those playlists blur the line between your music ripped from CDs, purchases from iTunes, and music from the service, and that’s by design.
There’s a lot in Music, as it strives to be the only music app you might need. Clearly it aims to compete more fully with Spotify. Spotify has some 20 million subscribers and 75 million users worldwide. Part of its success is offering a vast catalog, the ability to listen to specific tracks and albums on demand, and well integrated social features. Apple Music is matching this, as well as mixing in curated playlists, social, and Siri integration. For an Apple app, it is more complicated than usual as there are a lot of features, and it takes some time to get used to it and discover all the capabilities. From a pricing standpoint, it has an important feature that will appeal to families and sharers. After the three-month free trial, the individual subscription price will be the $9.99 a month, but a family can have six members on Apple Music (with Family Sharing) for $14.99 a month. If this takes off, it may force Spotify and other competitors to rethink their subscription pricing.
Will Apple Music be the ultimate winner? Music has certainly become a de rigeur ecosystem feature, with Apple, Microsoft, Samsung, Google, and Amazon all having free ad based and subscription based music services. I think Apple Music is more likely to take additional share from services like Pandora, Slacker, and Rdio. With increasing integration into cars with CarPlay, it is likely to continue the slide of satellite radio service SiriusXM. Pandora and Slacker were pioneers in streaming, but many of their once unique features are being subsumed into the platform offerings. But I also believe the music industry wants competition; where once it was difficult to get the licenses for streaming services, it has opened up considerably if you come with right amount of cash and a compelling proposition. They don’t want one or two dominant vendors the way that iTunes dominated downloads and effectively changed the pricing model for music from the $18 CD to $.99 singles and $9.99 albums.
Nonetheless, the music streaming space is getting crowded and more consolidation should be expected, as it is simply not a wildly profitable business due to the content licensing costs. As Sascha Segan pointed out recently, Apple Music doesn’t have to really be better, just good enough to succeed. As the default music app on IOS, and built into iTunes, it has a huge built in user base, a competitive pricing model, and appears to cover most of the bases. It’s also good for Apple to up the ante, as it will force the competition to up their game too, ultimately offering us more and better choices for music consumption.
