Pando

As new details emerge about Apple's streaming service, here's how it can beat Spotify

By David Holmes , written on February 4, 2015

From The News Desk

Apple's foray into subscription streaming music has been off to a rocky start.

Since acquiring Beats last year for $3 billion, the company has struggled to convince users to join the $9.99 a month service which -- unlike Spotify -- does not offer a free ad-supported version. The reluctance of users to throw down cash for streaming music isn't all that surprising: Only 25 percent of Spotify's 60 million users pay $9.99 a month for its premium subscription, which cuts out ads and offers full mobile access. And presumably, many of those users tried the service first.

The world realized just how bad Apple's Beats problem was when sources told Techcrunch that the company would shut down the streaming service less than two months after acquiring it. Apple denied the claims, but nevertheless it was clear that, while the company was as bullish as ever on streaming music, the Beats brand would likely be dramatically modified and rolled into iTunes. Essentially, Apple was starting over.

Now we have a much clearer picture of what Apple's big streaming music play will look like. The biggest development, according to a report from 9to5Mac's (typically reliable) Mark Gurman, is that the price will be reduced to $7.99 a month or less, undercutting Spotify's premium version and matching the promotional price YouTube's Music Key will reportedly offer. Many music industry insiders have pled with Apple to lower that price even further, under the logic that the average amount a consumer is willing to spend on music yearly has gone largely unchanged since the days of CDs, sitting at around $60. While Apple's streaming service will amount to about $96 a year (excluding any annual discounts), the lower price is nevertheless a positive step toward customer acquisition.

There's more: As expected, the Beats brand will be revamped and the red and black color scheme jettisoned, according to Gurman. The report also states that "Apple’s new service is centered around the user’s [existing] music library," whether those songs exist on a person's device or in the cloud. Last September I wrote that if Apple's going to win the streaming music space it must reinvent the "music library" for the streaming age. Back during the glorious reign of the iPod -- not to mention the days of massive CD racks -- a person's music library was a sacred expression of their personalities and one that could be shared with friends, albeit solely in real life. Today, that personal connection with one's music collection has withered a bit, but now Apple is well-positioned to revive it by integrating streaming music with iTunes.

Despite these promising signs, however, Apple is arriving late to the streaming party. Sources tell 9to5Mac that a "lack of clarity from Apple executives over the direction of the project" has potentially delayed the relaunch from March until June. With Spotify continuing to grow and competition from heavyweights like YouTube and Amazon, does Apple still have a fighting chance to win this "Game of Tones"? (Sorry).

Of course it does.

First off, many believe the global audience for streaming music is still in its infancy. Just as Myspace looked poised to dominate the nascent social media space, the industry was still so young that there was plenty of time -- and plenty of untapped users and demographics -- for Facebook and others to surpass it. According to figures from May 2014, only 4-5 percent of music consumers in the US and the UK have signed up for streaming music services. That's to say nothing of consumers around the globe in countries where smartphone adoption and high-speed mobile broadband connections are slated to increase dramatically. To be sure, the competition for these users will be brutal. But that doesn't mean there isn't plenty of opportunity for Apple to play catch up, given its massive mobile users installed base and brand cachet.

Furthermore, Apple has some unique advantages over its competitors. For one, it's profitable -- something Spotify cannot yet claim despite $1 billion in annual revenue. If the quest to win over the hearts and ears of the world's music lovers comes down to a marketing arms race, Apple can outspend anybody that dares to cross it.

But perhaps the biggest deciding factor in the streaming music wars comes down to the completeness of a platform's catalog. And that's where Apple can really differentiate itself. Last November, Taylor Swift pulled her entire catalog from Spotify, including her new album which she sold exclusively through iTunes. That gamble paid off, at least in the short term; Swift sold 1.2 million copies of 1989 in the first week alone on iTunes. Beyonce, though she kept the rest of her catalog on Spotify, also sold her latest release exclusively through iTunes before offering it to streaming sites, moving 617,000 copies in a single week.

Now, imagine if Apple approaches Swift, Beyonce, and other huge stars who can miraculously still sell massive numbers of albums and says, "Hey, you can continue to use our powerful sales platform to sell new releases exclusively through iTunes for one or two weeks. But after the initial sales rush, you'll also give us exclusive streaming rights to your catalog."

That's a bargaining chip Spotify, which doesn't offer paid digital downloads, can't offer to artists. So if Apple can convince the Taylor Swifts, Beyonces, and Katy Perrys of the world to host their catalogs on its streaming service exclusively, that would likely go a long way in persuading users to leave Spotify and drop $7.99 a month on a more complete catalog. And let's not forget the other major act that has yet to appear on any streaming music platform, but whose catalog Apple has exclusive digital rights to sell: The Beatles.

If Apple can score exclusive streaming rights to many of these beloved artists, and if it can present its service in the same hyper-personalized way it presented iTunes back when the iPod ruled the world, that would place it in a remarkable position to overtake Spotify and every other competitor -- including YouTube, whose launch of a streaming music service has been even more fraught with difficulties.

Apple has already reinvented music distribution once and reaped the spoils of its own disruption. I wouldn't bet against it now.

[illustration by Brad Jonas]