David Balfour questions what Apple’s entry into the steaming market might deliver and examines its importance for others already established in the space
21 November 2014 - Press releaseThe FT reported this week that Apple is now working towards a major launch of its new streaming product which could come as early as March 2015. Whilst we suspect this launch date is anything but concrete, it does mean that the long-expected Apple streaming launch will almost certainly be launched in the first half of next year. Coming as it does just one week after the launch announcement of YouTube’s own full content music streaming service, the Apple news suggests that the digital music space will move into an entirely new and exciting phase during 2015.
Unsurprisingly, the report into Apple’s impending streaming launch was short on hard facts. What does seem certain is that the new service will be preloaded on a new version of Apple’s iOS software. It also seems likely that the service will be branded as iTunes, rather than Beats Music. (Whether this means Beats will survive under its current brand in some form is unclear.) Whether the launch will be global is also unclear, though that would seem logical for a company of Apple’s already-huge international penetration.
What everyone inside the music industry wants to know is how the service will be priced. How much will consumers pay and, crucially, whether it will include a fremium model, as found on Spotify and YouTube. Perhaps the most interesting line of the FT story for us is the one that reads: “Apple’s revamped Beats service will operate on a paid subscription model.” This sentence would suggest to us that there will not be any free-to-access, fully interactive streaming service. This idea is strengthened by the claim that the service “will form part of a three-pronged music strategy for Apple, alongside downloads and iTunes Radio.”
We’d imagine therefore that iTunes Radio, which is already an advertising-supported service, could well be the effective free tier of this service, with the fully interactive elements kept firmly behind a pay gate, as they currently are on Beats Music. This is nothing more than a guess, of course, but if true it might sound like music to the ears of some labels and artists during a period where overall business sense of having fully-interactive free streaming tiers is being questioned perhaps as never before. It would seem logical that iTunes Radio could act as the upsell tool to a much more interactive service on the paid tier. Whilst iTunes Radio has received muted response from users and the industry alike since its launch in 2013, we’ve always felt it to be rather underrated as a service, not least in terms of design and user experience.
The consumer pricing which Apple applies to its iTunes streaming service will be one of the most interesting and potentially disruptive elements of a forthcoming launch. The paid streaming model is now well established and the price point has remained firmly at $10 a month throughout its lifetime. Apple is of course able to offer a potential scale of business that may enable it to be one of the first services to drop that price point in order to gain a competitive advantage. That said, labels are at the same time wary of devaluing the growing streaming model, whilst being keenly aware that the end price point for streaming services probably does need to come down in order to attract much wider consumer take-up. This confusing position is only complicated by the fact that the big labels are all part owners in Spotify, and would be foolish to do anything that might undermine the longterm prospects of that company. Perhaps Apple will look to secure an advantage in securing extended free trial periods on its new service?
There are big differences between the climates surrounding this possible iTunes streaming launch and the original iTunes download store launch. When it launched its download service, Apple was really the only game in town when it came to trying to establish a mainstream consumer digital music business. The company was able to make big demands in its negotiations with labels, forcing big concessions such as the inability for labels to force-bundle album purchases. As it approaches the streaming model however, Apple looks to enter a market with some already firmly-established players and well-established business models and price points. We suspect that whilst negotiations with labels are likely to be complex, what we won’t expect to result from them is something which completely blows apart the streaming model as we know it already – to agree to that would be for labels to concede too much to a company which can both harm and help their wider businesses.
Whilst Spotify, Deezer et al certainly have reasons to be concerned about an Apple entry into the streaming space, we wonder if it isn’t services like Pandora that face the biggest threat, especially if Apple’s only free tier is its radio offering. It’s notable that as Apple plans its launch, all of the interactive services seem to be placing a growing emphasis on the lean-back, playlist-based, radio-like functions of their offerings. There’s a growing awareness amongst services that the semi-engaged music fan is every bit as important as the fully-engaged one.
One thing we’d definitely like to see from the Apple launch would be the adoption by the tech giant of hi-res download formats. Whilst the company already sells music in its own Mastered for iTunes format, we feel that there’s a rapidly-growing demand from hardcore music fans to be able to purchase true 24 bit quality audio files. There may be doubts about how much more quality these formats really deliver to the human ear – not least given the wide variation in quality of both audio systems. It’s seems clear however that there is already a significant and growing consumer demand for these formats. Some labels and distributors we spoke to at this week’s Indie Con event in London not only reported that they are already making significant revenue from these formats, but went as far to suggest that these high quality downloads will be the surviving and dominant download model within a near future. With Apple’s perfect positioning as a hardware company, alongside the iTunes Music Store’s rapidly decreasing appeal, a full entry into the hi-res downloads market would seem like a logical move. Add the recent acquisition of a ‘high quality headphones’ business from Beats into this mix and such a launch seems like a no-brainer.
The process of Apple-speculating is always a dangerous one. In recent years we’ve unfortunately more often been disappointed by the company’s music launches than we have been plain wrong. There is therefore a concern that any new service might not be as disruptive or game changing as we once typically expected from Apple. That said, the scale is there, the experience is there and the desire to remain a significant player in the music space is also there. What’s beyond doubt is that competition in this space which could come from a fight between Apple, Google and Spotify, amongst others, means that 2015 will be the year that streaming really starts to become established as the indubitable mainstream music listening proposition of the future.
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