As Apple grows streaming service, it wants to pay less to music labels
In the two years since its release, Apple Music has been gunning for Spotify’s top spot atop the music streaming world, playing the upstart as it rushes to occupy territory as an ambitious, new competitor.
It’s made some important strides. Apple has aggressively converted 27 million subscribers, and has bolstered its catalog with exclusive online television. And in yet another sign of Apple’s momentum, the company is said to be renegotiating its deals with record labels, offering a smaller cut on the promise it will continue to deliver ever more listeners.
Given that progress, what is the No. 2 streaming player doing hawking its service on daily deals site Groupon alongside coupons for cargo shorts and couples massages? It’s part of the land grab, analysts say.
“A lot of the deals on Groupon are from companies that perhaps have seen better days,” said Rafi Mohammed, a pricing consultant. “But on occasion, Groupon does do a high-profile deal with a major company.”
First-time customers can sign up for Apple Music and get three months free, if they grab the Groupon deal. Afterwards, subscribers are automatically renewed for a regular membership, at $9.99. The free trial is the same as the one Apple offers on its own site. Experts say that rather than giving off a whiff of sales-desperation, Apple’s Groupon move is the latest sign of the company’s aggressive play to reach new streaming customers.
“Apple Music is growing fast, but not as fast as Spotify,” said Mark Mulligan, a digital music market analyst. “It needs to widen its acquisition funnel to attract more users. Groupon is just one example of this strategy.”
Apple’s customer base is limited to people who own Apple devices, whereas Spotify’s potential audience is anyone with a smartphone. But this can work to Apple’s advantage, Mulligan said. “Over the next couple of years, Apple is likely to strengthen its position due to its ability to market directly to iOS device owners and to give increased priority to Apple Music within its devices. In effect, Apple has an inbuilt advantage (among iOS device owners) and by the same token, the ability to limit the reach of Spotify.”
As Apple Music has built up a dedicated following, the company is said to be negotiating to reduce the share of revenue it doles out to record companies, according to Bloomberg. Apple currently offers record labels 58 percent of streaming revenue. The terms of the new deals would bring down the cut closer to Spotify’s, which offers 52 percent, signaling that Apple no longer has to appease the industry with bargain rates. The renegotiated terms would depend on Apple Music delivering a growing base of subscribers.
With nearly 30 million subscribers, up from 20 million in December, Apple is trying to unseat market leader Spotify, which has 50 million customers. Pandora, which has long offered Internet radio, recently started a premium, on-demand streamdevaluing ing service to compete with Spotify and Apple, and hopes to amass 6 million to 9 million customers by the end of this year.
Using free and discounted trial offers is common for music streaming services, Mohammed explained. In addition to Apple Music’s three-month deal, Spotify, Pandora Premium and Amazon’s Music Unlimited all currently have promotional offers ranging from 30 to 90 days. Spotify also has a deal running on Groupon.
While Groupon has been associated by some businesses and critics as a company’s brand, since customers armed with a coupon are less likely to return and pay full price, Muhammad said that Apple has explicitly shaped the deal as a one time-offer, managing the consumer’s expectations.
“Groupon isn’t really going to affect its brand. The way they framed it is it sets the expectation that this is a good deal, but you shouldn’t expect to capitalize on this again,” he said. “You are not devaluing the product, because you are very up-front.”