When Apple Music launched at the end of June, some experts in the streaming music industry insisted that the world's most valuable company wouldn't win over listeners just because it was Apple. Spotify had already built up a sizable subscriber base, they said. As for Internet radio, Pandora and iHeartRadio had a serious head start.
About four months later, Apple hasn't pulled out ahead. But it's gaining. Apple CEO Tim Cook recently revealed that as the first Apple Music users come off their free three-month trial, the service now boasts more than 6.5 million subscribers who pay at least $10 a month to stream music. That's still only a fraction of Spotify's 20 million paying users. But it's not a bad start.
And more to the point, Apple isn't in a hurry. With a huge pile of cash and massive profits, Apple is under little pressure to show quick returns. As it turns out, the same advantages that give Apple so much power overall---its size, its resources, its visibility---give the company a serious edge in streaming music. Apple doesn't have to win right away---which is why ultimately it will win.
Apple has been in the digital music business since digital music became a business. It *knows *music---and more importantly, it's known how to sell it since the earliest days of the iPod. It's core to Apple's identity. The company is less set on destroying competitors, like say Spotify, as much as gaining subscribers slowly and surely as it seeks to fulfill its ambition of seeping into every corner of customers' lives. Apple is betting that it has the means to develop a top-notch music service that appeals to millions of paying subscribers not just on their phones, but in their cars and on their TVs---anywhere anyone spends their time..
“Everybody gets fixated on the short term,” Eddy Cue, the senior Apple exec heading up Apple Music, told The Evening Standard, “but we’re in this for the long haul.”
Internet radio giant Pandora, another Apple Music competitor, has 78.1 million active listeners—far more than the 15 million Cook claimed so far for Apple Music. Yet when Pandora released its third quarter earnings last week, the company's share price plummeted on news the company had lost 1.3 million listeners. Company executives said Apple Music hadn't had a dramatic impact on its subscriber base. But the timing didn't look good.
Pandora and Spotify are not, of course, Apple Music's only competitors. There's Rdio, Rhapsody, and Deezer. Amazon has a music streaming service that comes with Prime, and just last week, Google launched a new music and video subscription service called YouTube Red. The supply of streaming music is greater than ever. The demand, however, isn't limitless.
"Unlike the video world, what distinguishes the music world is that there's really no barrier to entry. If you want House of Cards or Game of Thrones, those are not things just anyone can go out and get. Most content in the video world is generally locked up in an exclusive basis,"says BTIG Research media analyst Richard Greenfield.
But, for the most part, the music world works differently. Contracts to stream music or play it on the radio aren't typically exclusive. "In the music world, anyone can duplicate what everyone else already has," he says. "There are lots of companies that realize how much time people spend listening to music. For companies with billions of cash, entering the music space is a natural and very logical decision."
That makes it especially difficult for streaming services that are strapped, or at least have limited cash. "Online music has never been a terribly profitable business," Greenfield says, and the margins only become tighter as the competition grows fiercer.
From the beginning, Apple Music has been plagued by mixed reviews. Some critics and potential users have complained about the app's design and what they say are the limited offerings on Beats 1, the marquee online radio station Apple launched along with the service. But if Apple is playing the long game---to be not only on phones in pockets everywhere, but also in cars and on TVs---it doesn't need everything to be perfect immediately.
While Spotify may be preparing for an IPO and Pandora has to appease its investors, Apple has the cash to continue to develop Apple Music, to negotiate exclusives with high profile artists, and to, most crucially, wait as the market for paid subscriptions continues to grow. Apple's main business is hardware; its music streaming service is tiny compared to the rest of it. Apple wants Apple Music to succeed, but its key value to the company is the way it brings more value to high-margin hardware.
In that sense, Apple doesn't really have to worry about its competition---at least not the way its competition has to worry about it.
Because of its size and strength, Apple might not even really see streaming music as the competition at all. “The real target of Apple Music is radio rather than recorded music streaming," writes Richard Windsor, an analyst at Edison Investment Research, in an email.
“Despite grabbing all the headlines, the recorded music industry is currently worth around $16 billion while radio advertising is worth around $44 billion per year," Windsor adds. If Apple ever decides to incorporate advertising into its radio offerings, it could grab a piece of that much bigger market.
Beats 1 is freely available on every iOS device that has the most recent operating systems, "making it the default streaming radio station on over 400 million devices," Windsor explains. "History has shown that being the default setting or option on a device confers a huge and often unsurmountable advantage.”
The future for Apple Music isn't just about music. It's about the iPhone, Siri, Apple TV, and CarPlay. Apple doesn't need Apple Music to win to succeed; it just needs to help Apple sell more phones, tablets, TV boxes, and whatever else Apple decides to invent down the road. The irony is that, the same reasons that Apple isn't dependent on Apple Music for its success as a business make it all the more likely Apple Music will win anyway.
