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Apple Music Hit 10M Mark: Not Too Bad

by User Not Found | Jan 14, 2016

By “not too bad” I mean we are not too bad with our prediction.

The Financial Times reported that Apple Music has hit the 10 Million subscriber mark six months after the service was launched, two months after it announced to have acquired 6.5 Million subscribers. We are not surprised by the speed at which Apple Music is gaining traction. As a matter of fact, it is very much in line with what Strategy Analytics’ predicted:

“Apple Music will grow to become the 2nd largest subscription music service, putting pressure on Spotify. According to Apple CEO, Tim Cook, Apple Music had 6.5 million paying subscribers, plus an additional 8.5 million subscribers still in their free 3-month trial as of mid-October. Assuming, Apple Music continues to convert trial subscribers to pay subscribers at a 59% rate they will easily eclipse 10 million subscribers some time relatively early in 2016, putting Spotify squarely in their crosshairs….”

We see Apple Music’s healthy growth positive to the music industry, as every additional subscriber Apple recruits means an additional payment to the artists and labels. This is exactly what the artists have asked for, for example Swift and then Adele have shunned ad-funded free streaming like Spotify.

Several factors have contributed to Apple Music’s fast growth. Firstly, the service’s broad reach, which is largely helped by both the iPhone’s continued success and the Android app for Apple Music that Apple has recently launched. Among the new markets penetrated, China is an important one not only because of its potential but also the difficulty to enter by overseas companies. Apple Music has so far been launched in 111 countries, dwarfing Spotify’s 59 where China is absent. China isn’t even on the map of Deezer’s more impressive 186 countries.

Secondly, Apple has managed to acquire exclusive content; most noticeably it succeeded in securing the right to exclusively distribute Taylor Swift’s music documentary from her world tour. This in itself is no small PR achievement after Swift’s public rebuttal of Apple’s payment policy immediately after Apple Music was launched.

Apple’s brand pull is also helped by the dedicated marketing campaigns for Apple Music in different channels. Meanwhile, Apple has unprecedentedly adopted tactic pricing in selected markets to fend off competition.

However all these contributing factors rely on the fundamental advantage that Apple Music has over its OTT competitors (Spotify, Deezer, etc.): Apple doesn’t have to make a profit from Music. With its business model built around a healthy business from selling devices, Apple can afford to expand into new market quickly (paying for distribution rights from rights owners and labels), securing exclusivity, and investing in expensive marketing campaigns as well as offering discounts when it sees fit.

This is where it doesn’t bode too well for the independent OTT music services. Pandora has consistently reported operating losses, and there is a strong indication that Spotify’s losses are getting bigger. At the end of the day, a business needs either to make money or to fold. That’s why we also predicted that:

“…we expect to see more consolidation in the mobile music market in 2016, either in the shape of the recent acquisition of Rdio’s key technologies by Pandora, or merger of players of smaller scale.”

There may also be a third solution for the struggling OTT streaming music services: becoming an “Apple Music” in its own right, by which I mean becoming a value-add service in a profitable business. This is the model of MixRadio’s acquisition by LINE or more recently Kakao taking the majority share of MelOn.

However we do not see Apple Music’s success spell the end of ad-funded free streaming any time soon. As the large majority of artists do not have the sway of a Swift or an Adele and will settle to offer their works to the free tiers, and frankly, the majority of consumers will continue to trade a couple of ad-breaks for free listening.

Not all the news is bad for the OTT services though. When The Beatles catalogue became available for streaming, nine leading services including Apple Music, Spotify, Deezer, etc., joined the party, including the ad-funded free tiers from those that offer them. In that sense, Apple actually lost the exclusivity it had over the digital distribution of The Beatles songs.

 Or it may just think Swift is a more worthwhile exclusivity to have.

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