Ap­ple mus­cles into mu­sic stream­ing

But can the firm get users to pay for its ser­vice and catch up with ri­vals that of­fer free op­tions?

Los Angeles Times - - BUSINESS - By Ryan Faugh­n­der

Ap­ple’s iTunes made its mark as the place to buy mu­sic down­loads, but it left the fast-grow­ing stream­ing busi­ness to ri­vals such as Spo­tify, Pan­dora, Rhap­sody and oth­ers.

Now it’s play­ing catch-up. On Mon­day, Ap­ple for­mally launched its bid to be­come a one-stop shop of dig­i­tal mu­sic of­fer­ing on-de­mand stream­ing, on­line ra­dio and a fea­ture where artists can share new tracks and video.

Mu­sic in­dus­try vet­eran Jimmy Iovine, Ap­ple’s point man on the project, called it “one com­plete thought around mu­sic” that stands in con­trast to the “frag­mented mess” of stream­ing and down­load op­tions in the mar­ket. He told the au­di­ence at Ap­ple’s de­vel­oper con­fer­ence in San Fran­cisco that the ser­vice would be rev­o­lu­tion­ary. The big ques­tion is whether con­sumers will pay. Ap­ple hopes to en­tice peo­ple with a free three-month trial, but af­ter that it will charge $9.99 a month for ac­cess to the 30 mil­lion songs in its cat­a­log. Spo­tify, Ap­ple’s main ri­val in stream­ing, gives con­sumers the op­tion of a free ser­vice if they agree to hear ads with their mu­sic.

“The chal­lenge for ev­ery­one right now is that we have this win­dow of con­sumers who lost the re­la­tion­ship be­tween the ap­pre­ci­a­tion of mu­sic and the com­mer­cial value of it,” said Joe Rapolla, a mu­sic pro­fes­sor at Mon­mouth Uni­ver­sity in New Jer­sey and a for­mer record la­bel ex­ec­u­tive. “There’s still a lot of work to be done.”

In­deed, many mu­sic lis­ten­ers have never paid for mu­sic, in­stead us­ing free ser­vices such as YouTube or file­shar­ing sites. But Ap­ple has an ad­van­tage over its com­peti­tors: An es­ti­mated 800 mil­lion po­ten­tial cus­tomers who use iTunes on mo­bile phones, com­put­ers and tablets.

Ap­ple, with its mas­sive user base and knack for de­vel­op­ing easy-to-use prod­ucts, may at­tract many peo­ple who have so far avoided stream­ing. The com­pany wants to push the in­dus­try be­yond the early adopters and techsavvy young peo­ple who have streamed mu­sic for years.

“It’s a much higher-class horse race now,” said Larry Miller, a mu­sic busi­ness pro­fes­sor at NYU-Stein­hardt.

Sub­scrip­tion stream­ing sales grew 39% last year world­wide, ac­cord­ing to the In­ter­na­tional Fed­er­a­tion of the Phono­graphic In­dus­try, or IFPI. But it’s still a rel­a­tively small mar­ket — with fewer than 8 mil­lion peo­ple in the U.S. pay­ing for stream­ing, ac­cord­ing to the Record­ing In­dus­try Assn. of Amer­ica.

In­creas­ing the num­ber of sub­scribers is a pri­or­ity for record in­dus­try ex­ec­u­tives, who have seen down­load sales fall in re­cent years. Record la­bels have been un­happy with the roy­al­ties gen­er­ated from ad-sup­ported stream­ing, and that has trig­gered de­bates in the tech and mu­sic in­dus­tries over how artists are paid.

Warner Mu­sic Group Chief Ex­ec­u­tive Steve Cooper called Ap­ple’s an­nounce­ment “a mile­stone mo­ment for our in­dus­try,” and said the in­creased com­pe­ti­tion in the space would help drive growth.

“Right now, ac­cel­er­at­ing the global pro­lif­er­a­tion of pay­ing sub­scribers is one of our most im­por­tant goals, and Ap­ple’s mas­sive re­sources and huge cus­tomer base will make it a pow­er­ful player in tur­bocharg­ing that growth,” Cooper said in a state­ment.

There’s no doubt that dig­i­tal mu­sic pur­chases are dwin­dling — down about 8% in 2014 com­pared with the pre­vi­ous year, ac­cord­ing to the IFPI. But, de­spite the trend, down­loads are still a big busi­ness for Ap­ple. The iTunes store, which also sells movies and apps, gen­er­ated $10.2 bil­lion in sales last year.

Mu­sic down­loads prob­a­bly aren’t go­ing away any time soon for a num­ber of rea­sons. Stream­ing can be an ex­pen­sive drain on mo­bile phone data plans, and there are also ru­ral parts of the coun­try where it’s hard to get a sig­nal.

But an­a­lysts see stream­ing as the way of the fu­ture as mo­bile net­works con­tinue to get built out. The pop­u­lar­ity of stream­ing, even if it’s not a mas­sive fi­nan­cial driver yet, is one rea­son Ap­ple spent $3 bil­lion last year to buy mu­sic stream­ing and head­phone maker Beats from Iovine and rap­per Dr. Dre.

Ap­ple is hop­ing that it has packed enough new fea­tures in its new ser­vice to en­tice users.

Ap­ple Mu­sic will sug­gest al­bums and playlists based on users’ tastes and lis­ten­ing his­tory, and it also hired mu­sic ex­perts to build playlists. It has also re­vamped its iTunes Ra­dio as Ap­ple Mu­sic Ra­dio, adding a 24-hour on­line sta­tion called Beats 1. The sta­tion will fea­ture popular DJs such as Zane Lowe in Los An­ge­les, Ebro Dar­den in New York and Julie Ade­nuga in Lon­don. Users can ac­cess Beats 1 with­out a sub­scrip­tion.

Users will also be able to run the ser­vice with Ap­ple’s voice com­mand app Siri, with com­mands like “Play ‘Born to Run’ ” or “Play the top song from May 1982.”

Ap­ple Mu­sic will launch June 30 in 100 coun­tries for iPhone, iPad and iPod Touch de­vices and will be avail­able for Win­dows and An­droid prod­ucts in the fall. Its pric­ing plan in­cludes a fam­ily op­tion, in which up to six mem­bers can share a $14.99-amonth sub­scrip­tion.

Com­peti­tors of­fered vary­ing re­ac­tions, some wel­com­ing and some skep­ti­cal. Alexander Ljung, CEO of dig­i­tal mu­sic com­pany Sound­Cloud, said at a con­fer­ence in Cannes, France, that Ap­ple’s ser­vice could con­vert droves of peo­ple to stream­ing and in­crease rev­enues in­dus­try­wide.

Spo­tify CEO Daniel Ek cryp­ti­cally tweeted “Oh ok” af­ter the Ap­ple re­veal, only to quickly delete the post. Ek has taken to out­lets such as Bill­board to de­fend the so­called freemium model, which en­tices users with free, ad-sup­ported ac­cess and charges to avoid com­mer­cials.

Spo­tify, the cur­rent leader in sub­scrip­tion stream­ing, has 15 mil­lion pay­ing cus­tomers and 45 mil­lion who use its free ser­vice. Paris-based Deezer has 6 mil­lion who pay, out of a to­tal of 16 mil­lion users. Pan­dora, based in Oak­land, counts 79.2 mil­lion monthly ac­tive users, the vast ma­jor­ity of whom opt for its free ver­sion.

Jeff Chiu As­so­ci­ated Press

AP­PLE CEO Tim Cook, right, hugs Ap­ple Mu­sic point man Jimmy Iovine at a con­fer­ence Mon­day.

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