Everybody knew at some point
Apple would get into music streaming business when they bought beats music last
year thanks to the decline of the download market and the rise in use of music
streaming services such as Spotify and Pandora and with the release of Apple
Music at the end of this month, Apple is in a great position to quickly gain a
dominant market position.
While there are some
unattractive elements of Apple's music streaming offering such as its social
media offering for artists to connect with fans (need we run through the gamut
of alternatives where artists can and already do this?), Apple can fix these
kinks quite quickly thanks to the cash and talent advantage it has over just
about every player in the music streaming landscape.
While the current players in
the music streaming market have reacted rather positively to Apple getting into
music streaming, you can't shake the nagging feeling that music streaming
executives across the board are racking their as to how they’re going to tackle
a company that has the money, prestige, talent and intent to dominate their
music streaming in a relatively short space of time
Rivals like Spotify has a big head start
with its 60 million subscribers (15 million of them paying subscribers) and,
unlike Apple's new offering, has an ad supported free tier which gives them the
chance to convert free users into paying ones. However, given the cash and
talent advantage Apple has over all its music streaming competitors it can
quickly make up for lost time as while Spotify can raise a lot of money to help
generate growth or at least combat its current inability to make money, Apple
can eat initial losses accrued from its new music service longer than Spotify
can. Apple can do this because they have cash to burn and, crucially, music
streaming isn't their core business so the stakes aren't as high for Apple as
they are for Spotify.
Apple also, worryingly for
competitors, have the ability to be the last mover in the music streaming
market much like Amazon was for online book selling and Google was for search
engines. This is more than likely to happen as Apple's cash advantage means
that they can offer larger royalties for artists and a much larger licensing
checks for record labels who own their artist's music.
However, the biggest
advantage Apple has out the gate is its ridiculously large customer base which
could make Apple the kings of music streaming in one fell swoop as Pandoras'
David Holmes pointed out "Apple alone already has 800 million credit cards
on file. And if it convinces just 4 percent of these cardholders to pay $9.99 a
month, the company would singlehandedly double the total amount of streaming
revenue made in the US last year"
All this might not frighten
music executives as so far they have negotiated the music streaming market an
awful lot better than they did the download market when then Apple CEO Steve
Jobs virtually browbeat the entire industry into killing the album and
fostering the single driven digital music market that's still prevalent today.
As content owners, Labels
this time round are in a better position than they were in back in the early
2000's when the industry as a whole was pretty much clueless as to how to deal
with online piracy and, to some degree, still are. The rise of music streaming
services has given record labels serious leverage over how music is distributed
as streaming services weakened the need for consumers to download music
illegally as they, much like iTunes did a decade ago, provided a much better
experience than the "illegal" alternative.
Labels have ruthlessly
used this leverage to, for the lack of a better word, extort money out of music
streaming services (particularly Spotify) to the point that their music
licensing costs outstrip their other costs combined. Their leverage is also why
most music streaming services don't make money despite reporting double digital
revenue growth group year on year and Spotify, who pay more than most, gets
their name dragged through the mud in the press with stories about low artist
payouts.
Labels even used their
advantage against Apple as they're the reason why Apple Music is priced at
$9.99 a month instead of the $5.00 a month Apple planned to enter the market
with and made negotiations run as close as they could to Apple's big
announcement. However, labels may come to rue how they have used their leverage
as content owners as explained earlier, Apple can quickly become their biggest
licencee of its content and maybe five years down the road, might be the only
game in town or at least the only game worth entertaining.
Tech companies are notorious
for aggressively negotiating prices with content owners and creators when they
have leverage over how content is distributed as Amazon's infamous clashes with
book publishers and Apple's famous negotiations in the early 2000's with music
executives have shown and should Apple dominate the music streaming market,
expect more of the same. Apple, surely none too pleased that their plans to
compete in the music streaming market were leaked twice leading up Tuesday'
release, would surely love to get payback after music executives were damn near dismissive about Apple Music and
patting themselves on the back for driving a hard bargain.
However, despite the efforts
of labels, the music industry looks like it's going to be one of the few
industries in the world to disrupted twice by same company as Apple are
determined regain their position as the kings of the digital music market once
again and with their vast resources, you can only pity the fool stupid enough
to bet against them.
No comments:
Post a Comment