How Apple could destroy Spotify, MOG, Pandora, and the rest

By Adam L. Penenberg , written on August 2, 2013

From The News Desk

Since I began subscribing to MOG more than a year ago, I rarely purchase music from iTunes. I have more than 15,000 songs in my iTunes collection, the vast majority ripped from CDs that I purchased and copied as Apple Lossless files. My collection is comprised mostly of jazz, some salsa, world music and classic rock with a smattering of hip-hop, classical, and other genres thrown into the mix. Still, about a sixth of the music I’ve amassed originated as digital downloads from the iTunes store, which means I’ve handed Apple more than $2,500 over the years to support my music habit.

Subscribing to a streaming service is a no brainer. For $9.99 a month, the cost of a single album on iTunes, I gain access to way more than 15,000 songs -- in fact, millions -- and can stream the music on any number of devices. Frankly, I don’t care if I own a song or not just so I can listen to it whenever I want. Besides, like many, I dislike the latest iTunes upgrades and find the program buggy, bloated, and joyless.

For me, though, the key advantage is that MOG, Spotify, and webcaster Pandora can stream at 320kbps while iTunes Match tops out at 256kbps. That’s because when you use iTunes Match, which costs $25 a year, you aren’t really uploading your songs into the cloud to play on whatever Apple device you choose. Apple simply identifies each song from its vast collection and makes it available to you, copying only those for which it has no equal.

Originally, the iTunes store sold songs at a highly condensed 128kbps, which was lousy from an audio fidelity standpoint. Six years ago Apple doubled the bit rate for songs it sold through its store, while stripping out the digital rights management. And as a handy bonus, a user could double the bit rates of iTunes songs in his library. But 256 is not 320; there’s a significant difference. In general, the higher the bit rate, the less condensed the file is and the better the sound. For the truly dedicated, it’s possible to hook up your AppleTV to your home audio system and with AirPlay stream iTunes at the higher 320kbps bit rate, as long as the songs are downloaded onto your iPad, iPhone, or computer (although iTunes/Match users will still only get 256kbps).

Surely I’m not the only one who’s migrated away from iTunes. Of course, Apple, with its $400+ billion market cap, isn’t sweating the loss of my music download business. But it’s always on the lookout for the next big thing, and if it can annihilate a few competitors along the way, so much the better.

So here’s how Apple could take over the music streaming business:

First, it could offer HD audio, which is exactly as it sounds -- music streaming at CD-quality -- for all songs sold through iTunes. Rumors have abounded of Apple’s interest in high-resolution audio. In 2012, The Guardian claimed that Apple was working on a new file format that would provide “adaptive streaming,” so that “the new system would adjust itself to the bandwidth and storage available on the receiving device.” This dovetails with musician Neil Young’s claims that he had been working with Steve Jobs on a high-resolution audio device before the Apple founder died, because both were concerned that “we live in the digital age, and unfortunately it's degrading our music, not improving.” When Jobs went home at night, Young claimed, “he listened to vinyl.” With HD Audio, Apple could trump Spotify, MOG, and their ilk on quality.

Second, Apple could enable users to mesh their iTunes collections with its HD Audio streaming service. I, for one, would find great benefit in being able to seamlessly toggle back and forth between the collection I own via iTunes Match and the far-larger one I subscribe to, with all of my music played at a fidelity that could rival compact discs. It would also be ideal if I could use my iPhone, iPod Touch, or iPad to create playlists that could draw from each and not be forced to do it on my laptop.

Third, Apple could incorporate iTunes Radio into this HD Audio format so that the music streamed through this is also CD quality. Then Apple would provide users with a flexible and highly personalized music listening experience. You could play music from your own collection, choose an album or playlist of songs to stream or discover new artists, or let a radio station choose music for you.

Finally, Apple could kill these music-streaming upstarts by undercutting them on price. Yeah, I know. Since when has Apple ever competed on price? Still, none of these Spotifies and Pandoraites are anywhere near profitability, as music licensing and overhead eats away at their revenues. That makes them vulnerable. Apple could charge $25 a year for a subscription to HD Audio, and I doubt Spotify and the rest could match that for long. Of course, Apple would also be subject to licensing fees, and this could get mighty expensive. But the company’s huge cash coffers give it a tremendous advantage.

In some ways, Apple, if it were to adopt my HD Audio plan, would be aping Amazon’s competitive strategy: brutally undercut competitors on price with the long-term goal of taking over an entire market.

It’s probably not how Steve Jobs would do it. Still, I bet it would work.