by : Business, October 2015

Dawn of the Streaming Giants

Dawn of the Streaming Giants

In response to the transition from digital music downloads to the rise of music streaming, Apple Music was launched on June 30th. Its debut has undeniably left more questions than answers in the music industry, adding up to the uncertainty about the future of the music industry. According to a recent report on Digital Music News1, despite the fact that Apple Music is most likely to have 15 million non-paying users, only a portion of them will remain as paying subscribers after its three-month trial phase expires. On the other hand, determined to retain its position as the leading music streaming service in the music industry, Apple Music’s largest rival, Spotify, is aggressively gathering more users for its streaming platform and could hit close to 100 million users by end of this year.2 Apart from Apple Music and Spotify, there are also other streaming platforms like Deezer and Google Play Music, concurrently trying hard and finding new ways to thrive in the music subscription space.

Apple Music and Spotify

Most Apple users would have begun the three-month trial phase from June 30th onwards, and hence would have ended the trial period by the end of September this year. A portion of Apple Music users would probably have forgotten to disable their automatic credit card payments setting and so would unintentionally commit to the subscription plan; the other portion, of course would have chosen Apple Music. Therefore, Apple Music might well lose a few million users by November, making a dent in its starting base of 15 million users. However, it may well still reach approximately one-third of Spotify’s 7.5 million paying subscribers.

Apple is commonly known for promising a better user experience than its competitors’ to customers. Apple Music has definitely proven to be friendlier to users than most streaming services, making the process of choosing a song easier and more efficient. Nevertheless, this may not be the case for Apple Music’s Connect, a platform for musicians to connect and interact with their fans. Although the inauguration of Apple Music sparked excitement and curiosity amongst Apple’s loyal users, the momentum has not been sustained. In particular, the digital revolution has undoubtedly impacted peoples’ never-ending desires for good social networking platforms and, while there is no doubt that Apple Music is strong on design, it is unfortunately weak on its social networking capability. For this user, and as others have noted, Apple may have focused too much on trying to integrate multiple features onto the system at the expense of neglecting the importance of a good user experience to its customers on Connect (see “Apple Music’s Debut”, MBJ, August 2015).

The main weakness of Apple Music’s Connect is that it lacks social interaction between the artists and their fans. It seems more like a broadcasting platform rather than a social networking one. For instance, according to Brian Chen of the New York Times, the artists that he follows mainly post pictures and updates about their latest activities without ever socializing with their fans.3 Added to that is the fact that Connect does not allow its users to connect and share their playlists with one another, defeating the purpose of a social networking platform in the first place. On the contrary, Spotify engages its customers well by enabling them to share their playlists with one another, regardless of wherever they may be worldwide. Both Apple Music and Spotify have curated playlists and other complex features. Apple Music generally offers a more organized and friendly platform for its user to browse music than Spotify, which oftentimes causes confusion amongst its users because of its options like “Search” and “Browse”.

Unquestionably, Apple Music will work better on Apple devices as compared to Spotify. Unlike Apple Music, Spotify is unable to take advantage of the Siri feature to choose a song on its platform. Further, in terms of subscription fee, Apple Music offers a cheaper subscription fee than Spotify. Most of Apple’s customers who are registered iTunes users can immediately sign up for a three-month free trial with just a single tap and pay a monthly subscription of $10 thereafter. In contrast, Spotify requires its users to pay $1 for the first three months and $10 a month thereafter if they sign up through the website. Otherwise, “[Spotify] charges its users a monthly fee of $13 inside Apple’s in-app payments service to make up for the 30 percent cut it gives up to Apple”.4

Deezer and Google

In the meantime, French streaming service Deezer will likely file for an initial public offering (IPO) to stay viable in the race with Spotify and Apple Music. Deezer is seeking funds from investors to expand its market share through partnerships. Deezer was founded in 2007 and its revenues surged 53 percent in 2014 to hit 142 million euros ($158.5 million).5 Although Deezer counted 6.3 million users by the end of June, it still falls well behind the music-streaming giant Spotify. Deezer’s strategy is to focus on expansion in Europe before moving on to the U.S. market. In Europe, the company has teamed up with telecom companies to sell its premium subscriptions with mobile-phone packages; it launched in the U.S. about a year ago.6 Deezer’s sales surged 41 percent in the first half of 2015, narrowing the company’s loss to 8.97 million euros from 12.8 million euros a year earlier.

Deezer’s plan to file an IPO could make sense. However, it appears that nearly half of Deezer’s ‘subscribers’ remain entirely inactive as they are, in actual fact, bundled into various mobile plans. Also, some of these users are unaware of the music streaming service in their mobile devices or plans. As many as 3 out of 6 million classify as ‘monthly inactive bundle users’7, and as of June 30th only 1.5 million were paying the full subscription fee. Deezer may be creating the perception of value, but it will still have a way to go before investors are convinced. (Even Spotify delayed a potential IPO; it has continued working, successfully, for venture rounds in the private equity market—an option that is still open to Deezer; unlike Deezer, however, Spotify first obtained the master licenses to use the recordings of the majors in the U.S, which brought in big venture money from Coca Cola and Goldman Sachs, among others).

Another potential big player is Google, although its attempts to build a music streaming service seem to be lackadaisical and so far have gone under the radar. Owning YouTube, the largest universal free streaming platform in the planet, must make Google Play Music the poor cousin in the family. And yet there is some effort there, even if the service is hardly promoted. Subscribers can have unlimited access to songs from its All Access streaming service by paying a monthly subscription fee of $9.99. Non-paying Google Play Music users can also store up to 50,000 tracks in a cloud locker for no additional cost. To compete with Apple Music for value, Google Play Music will be launching a family plan later this year. It is applicable to a family of up to six members and costs $14.99 a month, which is equivalent to the value of Apple Music’s family plan.8 (Spotify’s family plan is more expensive than what Google Play Music and Apple Music have to offer: a family of up to five people can use a single account to stream music there for $30 a month, but thereafter additions of family members can lower per capita costs substantially).

Closing Remarks

Music streaming services might eventually put a halt to the decline in physical recorded sales and digital downloads. Ultimately, Apple’s position as the world’s largest music retailer will be at stake. Apple may not be troubled much by the numbers: last year its revenue was $180 billion against iTunes receipts that would not have exceeded $4 billion. But the identity of the company could take a hit for the worse if Apple Music does not do well. Music defined Apple in 2003 and helped it usher in an era of unprecedented growth and affection worldwide. Apple’s iPods and iPhones defined the times. It would be a pity if the poor margins made on music were to stop Apple’s efforts at delivering a cutting edge service.

Earlier in the summer, after the release of Apple Music, Ian Rogers, one of its top promoters and directors, and a music industry celebrity, left Apple Music to become the chief digital officer at LVMH, whose brands include Marc Jacob, Fendi, Louis Vuitton and Dior.9 Rogers enjoyed perhaps the most distinguished career in the digital music space since the advent of the World Wide Web, and though there must have been personal gain for him in moving on, his departure from the largest and best known company in the world was disquieting. For many, the perception was that Rogers’s parting reflected the possible declining fortunes of Apple Music after the free subscription period expired September.

But Apple Music will likely adapt. The company is cash rich and there are many avenues to explore. Fitness tracking with music is a growth area and the company is a player with the iWatch and the iPhone 6. Its payment interface is second to none. Spotify’s clout, though, will continue to be daunting, as investors know. In June, Spotify got another $115 million in investment from Swedish telecom operator TeliaSonera, for a market cap of $8.2 billion.10 Spotify’s recommendations and discovery features are just as good as Apple’s, if not better. And, right now, Spotify is the more open platform.

By Shereen Cheong

1. Resnikoff, Paul. “The New York Post Says Apple Music Only Has 15 Million Trial Users…” Digital Music News. Digital Music News, 22 September 2015. Web. 25 September 2015.

2. Resnikoff, Paul. “Spotify Will Have ‘Close to 100 Million Users’ by Year End” Digital Music News. Digital Music News, 29 September 2015. Web. 29 September 2015.

3. Chen, Brain X. “Apple Music Is Strong on Design, Weak on Social Networking” New York Times. New York Times. July 1 2015. Web. 27 September 2015.

4. Chen, Brian X. “Apple Music Is Strong on Design, Weak on Social Networking” New York Times. New York Times. July 1 2015. Web. 27 September 2015.

5. Kharpal, Arjun. “Spotify, Apple Music rival Deezer plans for IPO” CNBC News. CNBC News, 27 September 2015. Web. 22 September 2015.

6. Mawad, Marie & Ruth, David. “Streaming Music Service Deezer Plans IPO to Challenge, Apple” Bloomberg News. Bloomberg News, 22 September 2015. Web. 27 September 2015.

7. Resnikoff, Paul. “Half of Deezer’s ‘Subscrivers’ Haven’t Played A Single Song In The Last Month” Digital Music News. Digital Music News, 28 September 2015. Web. 29 September 2015.

8. Ingham, Tim. “Google Play Matches Apple Music’s $14.99 Family Plan For 6 People” Music Business Worldwide. Music Business Worldwide, 29 September 2015. Web. 29 September 2015.

9. Mclntyre, Hugh. “Apple Music’s Radio Executive Ian Rogers Is Leaving Music Entirely” Forbes. Forbes, 2 September 2015. Web. 26 September 2015.

10. Kharpal, Arjun. “Apple Battle? Spotify just got a $8.2B valuation” CNBC News. CNBC News, 10 June 2015. Web. 26 September 2015.



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