Pando

Can Apple win the streaming music wars or is it already too late?

By David Holmes , written on November 19, 2014

From The News Desk

In the early 2000s, when Napster and other digital piracy sites began to eat away at the profits of an exceedingly bloated music industry, Steve Jobs knew immediately what Apple had to do.

In a Rolling Stone article celebrating iTunes 10th anniversary, Steve Knopper perfectly captures Jobs' bold plan : “Steve Jobs, Apple's founder and chief executive, saw Napster, MP3s and the Internet a different way. By late 2002, he believed music fans clearly wanted to download songs they liked in an affordable and easy way rather than driving to Tower or Best Buy or some indie record store to buy them on $15-to-$18 CDs. But during this period, the record industry had no affordable, easy and legal option allowing this to happen. Jobs saw opportunity.”

But now that streaming services like Spotify have begun to disrupt Apple's digital download business, the company under Tim Cook has been much slower to respond to the change. It took them until 2013 to launch iTunes Radio, nine years after Pandora Radio launched in the form familiar to us today. Furthermore, it was only last summer that Apple finalized its purchase of Beats Music, a subscription streaming service to compete with Spotify. And since that time, Beats has shown lackluster user growth with some estimates placing its subscriber base as low as 110,000. That has prompted the company to seriously consider a major rebrand and revamp of the service.

Now the Financial Times reports [pay-wall] that early next year, Apple will finally pre-load Beats onto every iPhone in an upcoming iOS update.

My question now is the same one I've always had every time the company announces a new post-iTunes music toy: What took them so long? Where was the boldness that marked Jobs' leap into digital downloads?

There are plenty of reasons Apple is well-positioned to win the music streaming wars against Spotify and the rest. Thanks to iTunes, it's became deeply entrenched in the music industry, both in the minds of consumers and the labels and artists. Furthermore, although digital downloads are in decline, it's still a revenue stream it can offer the handful of top tier artists who can still drive massive sales (like Taylor Swift). One possible avenue for musicians like Swift who have soured on Spotify would be to make their album available to purchase through iTunes for a period of weeks – so-called, "windowing – before making the album available to stream exclusively on Apple's Beats Music or however it rebrands its subscription streaming service. And finally, as shown today, it owns an operating system that it can leverage to push its service.

There's also the broader notion that people love to identify themselves, particularly their music tastes, through Apple's devices and services, going all the way back to the humble iPod. Google, with its Android operating system that can be modified by Amazon or Samsung as needed, doesn't have that same device loyalty.

And yet Apple continues to move slowly in this market. Certainly the margins are much stronger with digital downloads as opposed to Spotify- and Pandora-esque models, both of which have struggled mightily to attain sustainable profits. But in the early 2000s, the notion that people would pay $0.99 for songs and $9.99 for albums that live only in a digital space was not a foregone conclusion. It would be interesting to see how Jobs would have approaching the streaming music space, though unfortunately we never will.

Apple can still become a winner in this market. And its profits from other devices and services mean that, if nothing else, it can outlast the Spotifys and Pandoras of the world. But with YouTube and Amazon also playing in this field, Apple will need to boldly rebrand Beats and fast if it wants to compete. The automatic onboarding of Beats onto iOS is a good step, but is it too little too late?

[illustration by Brad Jonas]