Will Apple, one of the richest companies on the planet, knock Spotify, the streaming king off of its throne?
In another article, I’ve talked about how Tidal was destined to fail in the music streaming wars. Tidals release was a mess and it didn’t put money where its mouth was and was being outpaced by its competitors. But, Apple isn’t going to give up after its entry into the market. When Apple enters, it’s there to win. The streaming service has seen some impressive growth numbers in recent years. Apple Music has been steadily increasing its subscriber count, starting with 6.5 million worldwide in October 2015, growing to 20 million in August 2016 and 68 million in December 2019. They have the experience with iTunes and have learned how to turn a platform into a money-printing machine, but will it get ahead of streaming king Spotify?
An iTunes story
The story of Apple in the music business starts long before Apple Music. In 2003 Apple opened its iTunes Music store that would ‘revolutionize’ the music industry. In hindsight, they really did, because when iTunes was launched, the internet was a free-for-all where users got music for free. Literally. Something had to be done because the music industry was losing money fast. Even with the pace at which the music industry was aiming to shut down illegal websites, new ones kept popping up just as fast.
Steve Jobs flipped the model of how the industry was conducting business on its head, he sold separate songs instead of whole albums. Sales that drove large revenues. With iTunes, users could buy music for $0.99 a pop. Obviously, the big labels weren’t mentally prepared for the power play that Steve Jobs was playing as they had to settle for a 30 percent cut per sale. This was a tough pill to swallow for an industry that was previously swimming in money during their heyday. Now they had no choice and eventually settled, on the condition that Apple would build in a digital rights management system to prevent misuse of its service. Some labels refused to be part of the launch of iTunes altogether. Big labels that represented popular groups like the White Stripes and Craig David. They would not agree on the commission fees.
The reluctance of music labels to release their library onto iTunes kept plaguing the service years after its initial release
The reluctance of music labels to release their library onto iTunes kept plaguing the service years after its initial release. But despite labels trying to survive, eventually, they had to give in. Reuters reported in 2007 about the ‘upper hand’ of Apple during the negotiations. Reuters commented, ‘The labels were already beholden to Apple, which has more than 80 percent of all digital music download sales in the United States.’ It’s interesting to note that already back then, record companies were hoping that Apple opted for a subscription model, which would be a reliable source of income, instead of the sales per song.
Despite the music labels not popping the champagne in their board rooms, entertainment companies on the other hand were happy to partner up with Apple. AOL became the launch partner for the release in the United Kingdom, France and Germany in 2004. Members of AOL could download from a library of 700,000 songs through the AOL Music link program. Three years later, EA partnered with Apple to place their game soundtracks onto iTunes. All songs from its game library became available, debuting with Snoop Dogg’s The Doors’ Riders on the Storm from the racing game Need for Speed Underground. Today Need for Speed isn’t close to its former glory, but at the time the Underground franchise was shaking up the games industry, gathering a large fanbase. It’s hiphop soundtrack perfectly matched the ‘underground’ vibe it was aiming for.
Six years after its introduction, The New York Times reported on newly completed negotiations between Apple and the labels. But just like before the launch of iTunes, Steve Jobs knew that the record labels had no alternative. The music industry had no other place to go. Dave Goldberg, former general manager of Yahoo Music said to the NY Times, ‘I think Steve has been smart, and he knows he has the upper hand. They can’t afford to pull their music.’ When the article was published, before the dawn of the music streaming services, the digital music market was peanuts, with iTunes reaching an approximate sales of $1.5 billion in 2008. In the same year, Apple struck another high-profile deal, this time with IMG Sports Media, which would sell Premier League highlights from around 50 matches from the years 2002 up to 2006 through iTunes. An entire season of highlights costs 9.99 pounds (roughly $13).
The move of Apple didn’t go unnoticed by the competition. Apple was creating an extra source of revenue that perfectly aligned with its entertainment products like the iPod music player. In 2008, Nokia announced a competitor to the iPhone, The Nokia 5800 XpressMusic, which would include unlimited music downloads. The service would become available on other devices as well like the N95.
Amazon also entered the ring and as we’re used to by now, they undercut the market by selling popular albums for about $5.99. It signed deals with labels SonyBMG, Universal, EMI and Warner. Amazon wouldn’t restrict playing songs across different devices like PCs and MP3 players, which were still a thing before the smartphone became the all-in-one media hub.
One might wonder why the record labels signed up with Amazon for even lower prices than at Apple, maybe Amazon was paying subsidizing the albums? And why the labels pushed for digital rights management, accepting no such feature at the launch of iTunes? It feels like the record labels were trying to break the dominance of Apple by any means necessary, even if it meant breaking with tradition like rights management. By breaking the chokehold of Apple on the music industry, they could negotiate better deals and keep a larger cut of the sales.
Apple goes into streaming with Apple Music
And now we’ve finally arrived at the streaming story. In June 2015, Apple introduced Apple Music at the WWDC. It was ready to go head on with streaming service Spotify. Apple Music would incorporate radio, download and music streaming into its core app. Retailing for $9.99 and a family subscription for $14.99, but iCloud Family Sharing is mandatory. The Verge reported that it wanted to undercut its competitors, just like it did with the iPad at its launch. This was the subscription service that the labels were waiting for.
In 2018, Apple Music surpassed the subscriber count of Spotify in the United States
In 2018, Apple Music surpassed the subscriber count of Spotify in the United States, and to boost its dominance, it launched a flashy 1 minute and 30 seconds ad campaign featuring DJ Khaled and Kevin Hart. A big role was laid out for the son of DJ Khaled who was voiced by Kevin Hart. The Cult of Mac described the ad as, ‘Apple and DJ Khaled made a commercial of true cross-promotion genius.’ Although I found the ad a little distasteful, it blended well into The Boss Baby franchise which launched a year earlier and received a Netflix series in 2018.
In 2020 Apple Music renewed its contract with its major label partners Universal, Sony and Warner. But the deal would only span across the Apple Music platform and not other services like Apple TV+.
In the beginning, I mentioned that Apple saw some explosive growth in its Music service. In October 2015, the service started out with 6.5 million subscribers growing to 68 million in December 2019. It’s important to state that these figures cannot be seen as a standalone event. Apple had a major gateway to reach its customers and launch its products. Its active install base, which has access to its services instantly through its devices is the best advertising platform it has up its sleeve. To give you some sense of the scale of how massive this channel is, Apple reported that in January 2019, it had 1.4 billion active Apple devices. This number does not limit itself to smartphone devices either, it also includes iPods and Apple watches. In 2019, Apple shipped 185 million iPhones, a low from the year prior where it shipped 200 million units, but still an impressive amount for any company operating in the smartphone market.
These figures show you the enormous potential the company can utilize to mobilize its install base to explore its newly added products and services. Through its digital device ecosystem, along with its payments integrations, they can smooth out any installation process, lowering the barrier to entry. It owns the App Store where it can prominently feature the Apple Music service. They can push an installation on your device through an OS update. The opportunities are limitless and with 68 million subscribers and hundreds of millions of iPhone devices active around the globe, the market potential is still there. Although other music streaming services can access this install base too, Apple has the credibility of its hardware products, gaining trust with the consumer who will opt-in for the easiest and safest option.
A worthy adversary in the music streaming industry
Apple has been a serious player for many years when it comes down to selling digital music and it learned a lot about the ecosystem with iTunes. It learned to negotiate and how to strengthen its portfolio by partnering up with different entertainment producers around the world. The same way it did with its iPad product, creating a product that is loaded with content for each taste. iTunes had it all, from whole albums, separate songs, radio, and even Premier League commentary. It was jam-packed with content and therefore the service became irresistible.
While the digital music industry was growing, Apple was selling iPhones like hotcakes, expanding its potential audience. And when the time was right, when the music streaming business was becoming a commodity, Apple barged in with its Apple Music product. In just a few years it was able to garner tens of millions of listeners and there are no signs of them slowing down any time soon. They are growing their user base day by day, may it be through existing users, or new buyers of Apple products. Artists and record labels know that while the streaming market is yet to become just as profitable as album sales back in the day, Apple cannot be underestimated. Apple’s entry into music streaming might be the beginning of the creation of the duopoly as we see in the mobile operating system market today. Apple Music at equal footing with Spotify.