Quick Take: Apple Music Comes To Android

I just published a post over on MIDiA on why Apple Music has launched on Android. You can read the post here.

I’m going to continue to blog as usual here, especially the bigger think pieces – there’s one on next-gen labels coming tomorrow, but I’ll be using the MIDiA blog for more of the news-led quick takes.

We’ve launched a weekly MIDiA newsletter too which you can sign up to by adding your email in the box on the right hand side of our blog home page here.  The newsletter comes out each Monday and includes analysis, research and data on music, online video and mobile content.  Newsletter subscribers also get a free 28 page MIDiA report ‘The State Of Digital Music’.

Apple Music By The Numbers

Back in August when Apple announced it had hit 11 million subscribers I predicted that would result in around 6 million paying subscribers.  Yesterday Tim Cook announced that Apple Music now has 6.5 million paying subscribers, which translates into a 59% conversion rate.  Or at least 59% of trialists paid for at least one month.  As I wrote back in August, Apple will lose a share of those subscribers who will cancel after one payment (i.e. the ones who’d forgotten to cancel their payment details).  Somewhere north of 1.5 million of those subscribers will likely not make it through to a second month’s payment.  Which would leave around 5 million of those as long term subscribers.

The Acquisition Funnel Needs Widening

Cook also stated that the total number of users is 15 million which means that there are 8.5 million active trialists. Given that all the 11 million trialists reported 6 weeks after launch are now either gone or are subscribers that means all of those are additional trialists which gives us a monthly trialist rate of under 3 million or a little under 100,000 a day. Which is way below the 315,000 a day Apple had during the first 6 weeks (which is to be expected) but also below the 175,000 rate I had conservatively predicted back in August.  So Apple’s funnel is not yet performing as strongly as expected.  Given that most of Apple’s advertising for Apple Music is branding focused at the moment, we could expect that rate to augment steadily over the coming year as that brand message beds in.  And it could lift significantly if Apple shifts focus to product centric marketing i.e. what it normally does. (The Apple Music ad campaign is rare for Apple in that it doesn’t involve any product imagery).

apple music infographic

10 Million Cumulative Subscribers By Year End

If Apple continues at the current rate it should get to around 10 million subscribers by year end, of which 6 million or so will be active (i.e. not churned).  Which is again below my August prediction of 8.7 million because the acquisition funnel isn’t delivering as anticipated.  In revenue terms that would deliver cumulative subscriber revenue of $220 million by the end of the year.  Apple has earned around $140 million in total so far, of which $100 has gone to rights owners.

And we shouldn’t understate the scale of Apple’s success so far, narrow funnel or not.  It took Spotify 4 and a half years to get to 6.5 million subscribers.  Granted, it was a very different world back then and much of that growth had come without the US and of course without the benefit of Apple’s integrated ecosystem.  But even those considerations accounted for, Apple has gone from zero to hero in a flash.  In August I stated ‘Apple is on track to be the number 2 streaming subscriptions provider after little more than 6 months in the game’ and that is exactly where they are now.

To Restate Or Not To Restate

Music Business Worldwide cites an insider source that Spotify is on the verge of announcing its own new numbers. It will be interesting to see the fine print of how those numbers are reported.  Spotify has seen an uptick in subscriber growth at the same time it introduced its $1 a month for 3 months promotion, which is effectively a paid extended trial.  Here’s the conundrum.  If those numbers are reported as subscribers then expect terrible churn (for subscriber numbers) but if they are reported as trialists then conversion rates will be great but total subscriber numbers will not.  Common sense would dictate Spotify reporting those numbers as subscribers (they are paying after all) but that means at some stage Spotify is going to have to restate its numbers or provide some additional guidance.  Which incidentally Apple will also eventually have to do if it reports it cumulative 10 million subscribers at year end / early 2016 rather than the active subscriber number of around 6 million.

Apple and Spotify are now locked in a metrics arms race.  Both will use every trick in their respective arsenals to make those numbers look as good as they possibly can.  Whatever the outcome of that particular little spat, today’s numbers show us that even below its best, Apple just ran the first lap of a 5,000 metre race as if it was a 100 metre sprint. Let’s see if Apple can run an entire Mo Farah race at the speed of an Usain Bolt sprint.

Why Profit Doesn’t Come Into It For Apple Music

Apple has only ever been in the music business in order to sell more devices.  Apple does not need to make money from music nor has it ever needed to.  That doesn’t stop it being a crucially important music industry partner (in fact Apple is still pretty much the single most important partner on a global basis).  Nor does that mean that Apple doesn’t care about music or that it doesn’t take its role in the marketplace seriously.  But Apple is not in this game to make money.  Apple routinely ran the iTunes Store at ‘an about break-even basis’ which is financial report code for ‘at a slight loss’.  (Or in fact probably at a big loss if half of the costs of the combined iTunes / iPod ads had been factored in.)  Now Apple is spending big again on marketing its music product, but this time the ads are only for Apple Music so costs can’t be attributed to other parts of the business. Why this all matters is because it shows us just how seriously Apple is taking Apple Music and also its appetite for running it a loss leader.

Why Doesn’t Apple Just Buy Spotify?

One of the recurring questions around Apple’s streaming strategy is ‘why doesn’t it just buy Spotify?’.  Besides the fact it had already acquired Beats Music as part of the much bigger Beats purchase, Apple is not in the business of running other companies’ services.  Apple runs Apple services. This is because Apple is first and foremost a hardware business and its software and services are an extension of this – part of the device value proposition.  If Apple was a software and services business it would build Mac OS, iLife, iWork etc for other platforms.  Apple even made music production software Logic Mac only after buying it from eMagic.  iTunes is one of the stand out exceptions for this strategy but it is a legacy of when iPod was a PC / Mac centric device, where not being on Windows would have stymied iPod growth. (There is of course talk of Apple Apple Music becoming available on Android but if it does so it will only be because Apple wants to win back iTunes customers from Spotify.)

A Tunnel Vision Commitment To User Experience

The hardware-first / Apple-only strategy means that when Apple does buy other services it usually either assimilates them wholesale (remember LaLa?) or it strips them down to the bare bones and rebuilds them entirely (Beats Music).  This is all because Apple needs to own the customer relationship and customer experience in its entirety.  Apple’s tunnel vision commitment to user experience is the ideology that underpins this entire approach.  Which is why Apple didn’t buy Spotify.

Apple Could Make Most Streaming Margin By Promoting Spotify

apple music margin calcs

In fact Apple could make a LOT more money if it simply decided to spend money marketing Spotify to iOS customers.

For argument’s sake let’s assume Spotify has somewhere in the region of 6 million US subscribers, that 60% of those are on iOS and that 60% of those iOS users pay via iTunes, Apple thus generates $8.4 million a month in subscription revenue from Spotify.  To generate the same amount of US subscription margin from Apple Music, Apple would need 16.9 million US Apple Music subscribers (assuming an operating margin of 5%).  In fact, in practice Apple will be in heavy negative margins with Apple Music due to its extensive marketing efforts.

So if Apple was in the business of music for making money it wouldn’t even buy Spotify, it would simply spend money marketing it to the Apple customer base.  But that has never been the Apple way and is patently unlikely to become the Apple way. Thus Apple will continue on its mission to own every ounce of the streaming subscriber’s user journey.  Unfortunately the rest of the marketplace has to try to figure out how to compete while at the same time vainly searching for a profit.

Apple Music And The Listener-to-Buyer Ratio

The next 6 to 12 months could prove to be some of the most disruptive record labels have ever experienced, and nowhere will this pain be felt more than among smaller independent record labels with strong digital sales.   At the heart of this disruption will be Apple Music and the wider continued ramping up of streaming. If Apple Music is a success over the coming year it will do one or both of the following:

  1. It will convert / cannibalize non-subscribing download buyers
  2. It will convert / cannibalize existing subscribers

The probability is that it will do a bit of both with an emphasis on #1. The market level net impact of #1 will depend on the degree to which Apple converts lower spending iTunes buyers versus higher spending ones i.e. whether it increases or lowers the average spend.   But even if it is the latter the effect for smaller labels could still be net negative over the coming year. If you are a big label with hundreds of thousands or millions of tracks then you have enough catalogue to quickly feel major revenue uplift from 5 or 10 million new subscribers. If you only have a few hundred or a few thousand tracks though then the picture is less rosy.

The Listener-to-Buyer Ratio

At the core is the listener-to-buyer ratio i.e. how many new listeners you get for each ‘lost’ buyer. Let’s say that for every download sale lost due to an iTunes customer becoming an Apple Music subscriber transforms into 10 listens by 3 people within 12 months. So 30 streams instead of one download. The listener-to-buyer ratio here is 3:1. A generous assumption perhaps but let’s work with it. Against a base of $25,000 of download revenue that would translate into $6,250 less download revenue and $2,365 more streaming revenue. So a net loss of $3,885, a 16% decline.

If we reduce the average plays to 5 per user the revenue decline becomes 20%. In order for the revenue impact to be neutral the total new streams would have to be 80, which with a listener-to-buyer ratio of 3:1 would require each person to stream the track 27 times. Or alternatively a 8:1 listener-to-buyer ratio with 10 plays per user would also deliver no change in revenue. A great track could feasibly have an average of 27 plays per user per year, a good track could have 10. But an average track is going to be below both. So realistically, more than an 8:1 ratio is going to be required.

Scale Looks Different Depending On Where You Are Sat

What quickly becomes apparent is that the most viable route to ensuring Apple Music streaming revenue offsets the impact of lost iTunes sales revenue is as big an installed base of streaming users as possible. The more Apple Music users there are, the more likely more of them will find and listen to your music. This is why the scale argument so is so important for streaming and also why small labels feel the effect less quickly. If you have a vast catalogue you don’t need to worry too much about the listener-to-buyer ratio because you have so many tracks that you are a much bigger target to hit. The laws of probability mean that most users are going to listen to some of your catalogue.

Let’s say you are a big major with 1 million tracks out of the 5 million tracks that get played to any meaningful degree in streaming services. That gives you a 20% market share. But if you are an independent with 50,000 tracks that gives you 1%, 20 times less than the major. Which means that you are 20 times less likely to have your music listened to. And that is without even considering the biases that work in favour of the majors such as dominating charts and playlists, and other key discovery points. So in effect the major record label in this example could be 30 to 40 times more likely to have its music listened to. Which is why the listener-to-buyer ratio is unlikely to keep the major label’s exec up at night but could be the difference between sinking or swimming for the independent.

In all probability Apple Music will make streaming revenue a truly meaningful income stream for all record labels but in the near to mid term big record labels are likely to see a very different picture than the smaller independents.

Why The Next Few Months Of Apple Music Will Throw Up A Few Surprises

Finally Apple is in the streaming game. Other than to say that it looks like Apple has made a big first step towards making streaming ‘ready for primetime’ and to becoming a music platform I’m not going to add to the list of reviews and first impressions, there are plenty of good one’s like Walt Mossberg’s.   Instead I’m going to run through a few of the likely milestones and unintended consequences that we could see over the coming months.

Expect Impressive Numbers Real Soon

As we revealed on our MIDiA Research report on Apple Music back in March 28% of iOS users stated they were likely to pay for the service. Among downloaders the rate is 39% and for existing subscribers that rate rises to 62%. Consumer surveys of course always over-report so we shouldn’t expect those rates of paid adoption but the relative values are interesting nonetheless. Given that 50% of existing subscribers are iOS users the implications are that a big chunk of Spotify et al’s subscribers will at the very least try out Apple’s 3 month trial, which is plenty enough time to get build a comprehensive library of playlists and to get hooked. But there is also going to be a big wave of downloaders that do not currently subscribe that will try it out. Given how the iOS 8.4 update virtually pushes iTunes Music users into starting the trial on updating, expect pretty widespread uptake of the trial.   Apple reached 11 million users for iTunes radio within 5 days of launch, 21 million within 3 months. Apple Music has had a far bigger build up and is much more deeply integrated into iOS so a fairly safe bet is that those numbers will at the very least be matched.

A Mixed Bag Of Royalty Implications

Apple Music will also have a series of aftershocks:

  • Apple royalties will be a mixed bag: As the ever insightful David Touve pointed out with iTunes Radio, Apple has proven adept at striking licensing deals that appear to pay above market rates at a headline level but that in practice can work out lower. A key reason for this is the fact iOS users’ existing music collections are integrated into the service and plays from these will generate much lower per stream rates, more in line with licensed locker services. Add into this the fact that semi-interactive radio and broadcast radio are part of the proposition (both of which also have lower per stream rates than on demand) so the blended per stream rate may disappoint. Expect a stream (pun intended) of irate artist CD Baby statements showing their Apple per stream rates.
  • Download sales will suffer: If a streaming service does its job properly users should have no reason to buy downloads any more. Initially there may be a mini surge, a dead cat bounce as first time streamers discover new music and buy downloads out of habit. If this happens expect Apple to make a song and dance about it. But that will be a temporary phase. iTunes downloads will decline thereafter. Artists may have complained about theoretical lost sales from Spotify, they will be actual lost sales from Apple. What everyone will be hoping for is that enough lower and infrequent spending download customers get transformed into 9.99 a month customers. But that will take more time. So expect three, possibly four key stages to Apple (lower case ‘m’) music revenue: 1 – mini revival; 2 – sharpish decline; 3 – steady recovery; 4 – growth?
  • Spotify per stream rates could go up: If enough existing subscribers take up the Apple Music trial but don’t cancel their subscriptions, the royalty pot for Spotify et al will remain the same but play volumes will decrease. This means that the per stream rates for Spotify and co could actually increase for a while because the revenue will be split across a smaller number of plays. So expect artists to see a very pronounced, albeit temporary, difference between what Spotify pays from (paid) streams versus Apple.

So Apple will be for once upsetting everyone else’s streaming apple cart with its long anticipated entrance but there will be a superficially confusing set of mixed messages and metrics. Which means the time to properly measure Apple Music’s progress will be 6 months or so from now. Until then expect to be simultaneously impressed, concerned and confused.

Taylor Swift, Streaming And The Changing Tide

Taylor Swift made big waves over the weekend with her open letter to Apple protesting it should pay for its 3 month free trial.  Her voice was just one more following protests from across the indie community of which Swift and her label are both members. But it turned out that her voice was the loudest and Apple’s Eddy Cue swiftly announced a u-turn on Apple’s free trial pay outs. This is just one more twist in the much bigger streaming story but it does highlight some interesting dynamics, not least of which is how Swift’s worldview differs from many of her contemporaries.

Taylor Swift’s Sales Outlook Is Surprisingly Old School

As paradoxical as it may sound for such a digitally savvy artist as Taylor Swift, she is in fact from the old school when it comes to recorded music.  Swift started her career so early – she signed her first label deal when she was just 14 years old – that she is effectively further into her recording career than most successful 30 something artists.  So she is an album era artist who, with her label Big Machine, managed to build a long-standing successful music sales career.  Streaming, with all of its substitutive impact on sales, does not fit well with the Swift / Big Machine model.   In many respects Swift’s recorded music worldview has more in common with artists of Coldplay’s generation than it does hers.  The contrast with successful contemporary mainstream pop artists is stark. The take of Ed Sheeran (who is just one year younger than Swift) on the role of recorded music is “I’m in the music industry to play live. That’s why I make records” while Calvin Harris (currently romantically linked with Swift) is famously a co-owner of streaming platform TIDAL.  Both of those artists have been supremely successful on Spotify and neither has a decade of platinum selling albums behind them.  For them, streaming is simply how it is and they are learning how to make that work.

Streaming Is Fundamentally Substitutive

None of this is to belittle the hugely disruptive impact of going from a sales model which guaranteed up front revenue to an access model where revenue is fractionalised over many years.  In the sales era a purchased album generated $10 of gross revenue whether it was listened to once or a thousand times.  In a streaming service an album that is listened to once generates $0.10 and only reaches $10 when listened to a hundred times.  If you are a superstar artist you can probably swallow the near term pain because a) your streaming volumes are in the billions so the pennies add up and b) you make the majority of your money from playing live.  If you are a smaller artist the outlook is bleaker for getting through the transition period i.e. until streaming services are big enough to ensure a high tide rises all boats.

Live Is Where The $$ Are For Superstars

Interestingly for Swift, for all her sales success, live is also where she makes her money.  She ranks as the highest earning artist on Billboard’s top earners list with $39 million but $30 million of that came from live.  She explains in her post that “[I] can support myself, my band, crew, and entire management team by playing live shows” and that she is raising her voice for “the new artist or band that has just released their first single”.  This may well be the case but she is also very much doing this for her label Big Machine Records (which doesn’t get to benefit in any truly meaningful way from Swift’s live revenue).   Swift’s rise to prominence and continued success is intrinsically linked to that of her label Big Machine Records and it is fully understandable why she has been so perfectly aligned with Big Machine’s stance on streaming.  But it is a position nonetheless.

Apple Doesn’t Need Any Commercial Bail Outs To Launch Apple Music

None of this though detracts from the core issue at stake here, namely Apple not paying for a 3 month free trial.  Apple is in the business of selling music in order to sell hardware.  Apple’s primary concern is not what % of iTunes sales become substituted by free trials (near term) and subscriptions (long term) but instead how it helps them gain and retain device buyers. Swift, Big Machine and the rest have very good reason for being very cautious with Apple’s streaming strategy.  Apple is the leading source of digital music sales and accounted for approximately $2.8 billion of music sales revenue in 2014, or 40% of all digital music revenue.  If Spotify messes up a free trial the labels risk slowing the rate of new streaming revenue growth.  If Apple messes it up the money that keeps the lights on is at risk.

Apple doesn’t need any financial assistance in launching Apple Music (it does after all have $178 billion in cash reserves) but it does need careful attention from labels and artists alike to ensure it gets the strategy right. Whatever the outcome though the streaming transition is an inevitability and Taylor Swift is no more able to hold it back than King Canute was able to hold back the tide.

Apple, The Indies And The Rise Of The Digital Monopsony

Much of the independent label community have come out in public opposition to Apple’s request for a 3 month free trial that crucially would not involve any royalty payments to labels. Besides the fact this has revealed inconsistency in major label licensing strategy (some services have to pay royalties for their free trials) it also raises questions about Apple’s growing role as a content platform. In the old model (i.e. selling CDs on the high street and mall) retailers held all the power, charging labels for prime placement, priority shelf space and carving out additional commercial benefits such as breakage (whereby they were given a discount on a set assumption of a % of shipments that would break in transit, even if they didn’t). In the old new model (i.e. where we are now) the power shifted to the labels with music stores and services having to pay advances, minimum guarantees etc. in order to sell the labels’ content. Even breakage got reinvented and turned into a commercial benefit for labels (they get paid for under usage of services). Now a new model is emerging where a few big platforms are beginning to exercise the power they have been quietly building for the last half a decade or so.

Apple, Amazon And Google – The Digital Superpowers

Apple, Amazon and Google are all digital content platforms. They each own the customer, control billing, know everything about him/her, control some or all of the hardware and have a diverse portfolio of content assets. Each has also become super important to media company partners. For music labels Apple has become the dominant source of digital retail revenue, Amazon the dominant source of physical retail revenue and Google the dominant digital discovery platform. Each holds the whip hand in their respective area of dominance. Now they all want more. They may each want slightly different things but none are shy of wielding their respective spheres of influence to get to what they want. This is where the indies’ dispute with Apple comes into play. Apple is in the business of music in order to sell hardware and has known for a number of years that streaming is going to be how it transitions that role in a post-download world. It has thus far taken a very responsible approach to its sales role and has been sensitive to the risk of decimating label revenue if it does not time its streaming transition properly. But the first step on that journey has now been taken and the point of no return is fast approaching. Which is why it is crucial that all rights holders have the right agreements in place and which is why the indies are making the noise they are.

The Power Of The Platform

In an echo of Google’s heavy-handed YouTube Music Key negotiations with indies and DIY artists, one independent artist has claimed that Apple has threatened to remove his music from the iTunes Store if he does not allow his music to be used in the free trial. Whether this is true or not (and it may well not be) is almost not the point. What it highlights is Apple’s power as a platform. Artists and labels alike simply cannot do without iTunes revenue. Whether Apple needs to overtly play the card or not, the implication of the veiled threat is clear. And Apple is not exactly alone. Last year Amazon clashed with book publisher Hachette over eBook pricing and during the dispute employed a number of pressure tactics including: refusing to take pre-orders on Hachette titles, placing a 6 week delay on delivery of them and even pointing users to competitor titles when they searched for an Hachette book. All of these were clear misuse, possibly even abuse, of Amazon’s role as distribution platform but no regulatory body even raised an eyelid. Apple will have watched the development with acute interest.

The Rise Of The Digital Monopsony

Apple, Amazon and Google are all unique cases. They have become de facto monopolies for their respective sectors, exercising control over the entire platform of user, supplier and interaction between them. There isn’t really an economic term that properly explains them but monopsony is the closest: a company that is the only effective buyer and seller of a product and can thus dictate terms at both ends of the equation. These digital monopsonies are growing pains of the digital economy. After all, we are still in the very early stages of the digital economy. If this were the industrial revolution Robert Stephenson wouldn’t have developed the steam locomotive yet. Consider this phase market adolescence. This raises challenges for regulation with regulatory bodies largely unable to deal with companies that exercise effective monopoly power but that do not meet the criteria of a pre-digital era economy monopoly. Of course the indie labels cannot afford to wait for that dynamic to change so in the meantime they must seize the initiative in this issue and others like it.

An Opportunity To Change The Narrative

Right now though the indies have an opportunity to use this case to genuinely move the needle. Apple has pushed them out of their comfort zone. Instead of just digging in their heels they can decided to push Apple out of its comfort zone and request something similarly game changing of Apple in return. In short, turn a defensive move into an offensive one and help set the agenda rather than being stuck in the familiar rut of responding to the one set by the major labels and Apple. Apple Music may have underwhelmed at launch but the company still has the most important music monetization platform on the planet. Most indie labels and majors alike would all but collapse if iTunes revenue disappeared overnight.

Right now Apple still wants to play the role of good partner, albeit one that negotiates hard. So the labels still have a chance to help shape what the next chapter in Apple’s music story can look like. That may not always be the case, especially if Artist Connect has developed into a label like service layer 3 years from now, which I suspect will be the case. Apple is no Google, it still wants first and foremost to sell music rather than give it away. That may not always hold true.   Similarly the power of the digital monopsonies will likely strengthen over the coming half decade or so. So right now the indies are probably in the strongest position they will be in for some time, even if it might not feel like it to them. They need to seize this moment.

Spotify Plays The Big Numbers Game

Hot on the heels of Apple’s less-than-dazzling entrance into the streaming market Spotify made two big announcements: a further $526 million in funding and 20 million paying subscribers with 55 million free users. Not a bad retort.

spotify 20 million

Subscriber Growth Outpaced Free User Growth, Depending On Which Metric You Use

Between December 2014 and June 2015 added an average of 2 million free users a month and 1 million paid users a month. Although this meant Spotify’s free user base added twice as many users (10 million compared to 5 million) paid users grew faster in percentage terms, increasing by 33% compared to 22% for free.   These numbers can, and will, be taken to support both sides of the freemium argument and things are complicated by the fact that Spotify’s free user base is probably higher than 55 million. However the key takeaway is that based on the publically available numbers subscriber growth was faster than free growth in the first half of 2015.

Spotify Is Now Worth More Than Half Of the Entire Global Recorded Music Industry

Spotify was already the most heavily financed music service in history and it has nearly doubled its total investment in one single round, taking the total to more than $1.1 billion with a valuation of $8.5 billion. That translates to $55 of investment per subscriber. Or on a valuation basis $425 per subscriber which would take 3 and half years of continual subscription per subscriber to recoup in headline revenue terms. However as Spotify only gets 30% of revenue it would actually need 12 years of subscription per subscriber to generate $8.5 billion.

Of course VC funded company valuations are more about potential than they are realised value so the comparisons are slightly unfair. But given that $8.5 billion represents 57% of the entire global recorded music industry revenue in 2014 there are some pretty big assumptions being made.

Apple Music Is Still Likely To Prove A Fierce Adversary Even If It Is No Killer App Yet 

Make no mistake, Spotify has established itself as the global leader in its space and has good reason to feel confident. However Apple has so many structural advantages (owning the platform and billing relationships, massive addressable base etc.) that it is still likely to become the global streaming leader 3 years or so from now. (Assuming of course it ups its game from its entry product.) But that does not mean Spotify cannot be a success too.

Apple entered the download market when none of the existing stores had any meaningful customer base. Even with that supreme head start Apple still only managed around a 65% global market share of the download business. Granted most of the competitors were bit part players but in the streaming arena it is entering an established market with proven customer bases. This will not be a winner takes all market and I fully expect Spotify to be closer to Apple than Deezer (the current #2) is now to Spotify.

These are big numbers from Spotify that prior to Apple’s announcement it probably thought it would need even more than proved to be the case. Regardless, both sets of figures show that Spotify is geared up for a fight for supremacy. Game on!

What I Want To See Next From Apple

With Apple Music barely a few hours old it might seem a little perverse to focus on what Apple needs to do next but Apple’s potential remains more latent than realized. Apple has an opportunity to launch the sort of music platform the industry has been waiting for during the entire digital era but has not yet seen. It hasn’t done it yet but it now has the right materials with which to build it.

If Apple is going to make a meaningful long term impact on the streaming market it will need to play the innovation card.  Apple music products have been something of the poor relation in innovation terms over the last half decade or so, looking on wistfully from their music downloads backwater while Apple’s devices undergo an innovation and design revolution.

If Apple can seamlessly integrate all its assets (radio, podcasts, downloads, on demand streaming, apps etc.) then it could create the most comprehensive and engaging music experience in the marketplace. Imagine listening to a Zane Lowe show on demand, but tracks are played in sequence.  You like one of the tracks so you click ‘more by this artist’ and start listening to the latest album.  After a few tracks you pull back into the show, listen a bit more and then see a link to an Artist Connect video of an interview by Zane with the last artist you listened to. You jump to listen to that then jump back into the show, decide you want to hear the first couple of tracks and what Zane had to say about them again and jump back to there.

In that scenario the user has jumped from semi-interactive radio, into on demand, back into semi interactive radio, non-music content, back into semi-interactive radio, then into fully interactive radio. Of course there are multiple business models at play with multiple rights frameworks but if a user was able to top up on Apple Music credit to use across the entire platform then s/he need never know when boundaries are crossed and the credit would simply get auto deducted from the balance.

Implementation wouldn’t be simple (especially form a licensing perspective) but that is the sort of innovation bar that Apple should now be aspiring to. Apple has a unique opportunity to become a true music platform. The first step has been taken (and some of the Artist Connect functionality may prove to be super cool) but now it is time for the real innovation fun to begin.

Apple Music: A Platform Play With Hidden Nuance

Today Apple finally announced its long, long anticipated entry into the streaming music space with Apple Music. Apple has spent the last few years as the sleeping giant of streaming music watching Spotify et al seize the innovation mantle and dominate both consumer behaviour and the industry narrative. With all the anticipation expectations were understandably high, too high perhaps. Thus in many respects Apple Music underwhelmed (a 9.99 on demand service;  a 24/7 live broadcast radio offering Beats1; a fan / artist engagement platform Artist Connect). But there is also more than first meets the eye, there is a nuanced strategy at play.

Radio Takes Centre Stage

Placing radio centre stage is smart, as that’s how Apple will engage the early follower consumer, who will be Apple’s core target (other than winning back some existing Spotify users). Remember, Apple’s core priority is delivering the best possible music experience to as many of its device owners as possible. A 9.99 subscription service that works for 10% of them is much less interesting than a free radio service that works for 500 million of them.

There’s no little irony that Apple triggered an industry knee jerk reaction against free music only to go and put free music at the core of its streaming play. Of course the crucial difference here is that the free music is not on demand. Apple is using radio, real time broadcast and high profile DJs as a way of bringing context and meaning to internet radio for the Apple mainstream (which of course is slightly different from the broader mainstream). Whether Beats1 is enough on its own for that purpose is another question.  Beats2 and 3 to follow shortly?

Taking The First Step Towards A Platform Play?

Apple continues to be ridiculed for its failed Ping! music social network. While it was no killer app it nonetheless represented an attempt to turn iTunes into a music platform. Now that same strategy has been rekindled with the launch of Artist Connect. This is Apple’s attempt to turn itself into an artist-fan engagement platform. Artist-fan engagement is the gold dust of the digital era music business. It’s the scarce, invaluable commodity that music fans crave in a post-scarcity music world. The non-music content is also interesting. Artists can push photos, videos and works in progress to their fans. This combines elements of the D.I.S.C. music format I wrote about here and also the Agile Music concept I wrote about in 2011. There is no reason why music should be a creative full stop in the digital era nor why the static audio file should be the be all and end all. Music fans want more than just the song.

There’s no shortage of competition in this space but while DIY sites of various guises are niche, Apple presents the opportunity to reach more than a hundred million of the world’s most valuable (i.e. highest spending) music fans. Sure some of them now pay for Spotify but they’re still iTunes users also.  If Apple’s featureset for artist is strong enough, expect strong uptake, especially from the bigger labels and artists.

Apple Is Making A Play For A Bigger Role Than Ever In Music

The long term implications are intriguing. If Apple establishes itself as one of the key engagement platforms it will change some of the core dynamics of music marketing. All the while strengthening its hand and establishing an indispensable role for itself if it doesn’t make meaningful inroads into the subscription market. Consider it a back up plan. But even more interestingly, if it succeeds at both subscriptions and marketing then it suddenly has more power than it ever did in the hey day of the iTunes Store. Apple could emerge with the power to break and then make an artist. Once it gets there record labels will rightly start casting nervous glances over their shoulders.