How Apple and Beats could shake up the streaming music scene
Apple’s decision to splash out $3 billion for the privilege of owning Beats Electronics has raised more than a few questions about what the deal means for streaming music services users. But you can bet that Pandora, Spotify, and other major players are asking questions of their own in the wake of the Apple-Beats deal. As in: does an Apple-backed Beats Music service threaten to dominate the streaming music scene?
Like opinions on the deal that netted Apple both a streaming service and an uber-cool line of headphones—which range from strongly supportive to wildly unimpressed—the answers to this question are decidedly mixed.
“The competition is running scared,” said Mark Mulligan, owner of MIDiA Consulting and author of the respected Music Industry Blog. “Apple’s previous entries into streaming, like iTunes Radio, have been aimed at the company’s mainstream base while ignoring the early adopters that made Apple’s music success, leaving this field open to Pandora, Spotify, and others.”
That changes with Beats, which offers customized recommendations and well-regarded features like The Sentence for discovering new music. “Acquiring Beats restores some ‘coolness’ to Apple’s reputation, and puts much more head-to-head with other streaming services,” Mulligan added.
Fred Jacobs agrees, noting that the Beats deal gives Apple access to the creative drive and iconic status of Beats’ leaders Jimmy Iovine and Dr. Dre. And Jacobs knows a little bit about star power, having pioneered the “Classic Rock” radio format 30 years ago. These days, he’s president of the radio consultancy Jacobs Media and writer of its radio blog.
“None of the other music streaming services have the same celebrity-driven aura of Beats,” Jacobs said. “This gives Beats—and now Apple—something that Pandora and Spotify just do not have.”
Apple has a thriving business selling digital content—in its fiscal second quarter, the company tallied $4.6 billion in revenue from iTunes software and service. Mulligan notes that Apple enjoys “huge power” as an online retailer, backed by deep pockets. After all, Apple ended that same second quarter with $150 billion in cash. And that gives the comapny the tools to outplay its smaller competitors, Mulligan says, even if it means playing dirty.
“Apple has the ability to push Pandora, Spotify, and other services out of search results, or to make sure their services don’t quite integrate well with iOS anymore for some unknown reason,” Mulligan said. “Even if Apple plays fair, a Beats streaming service that is well-integrated with Apple’s devices will be hard to beat.”
One advantage of the Beats deal is that it brings Apple directly in contact with Android and Windows Phones devices, since Beats already supports both platforms. This move allows the company to expand beyond its iOS home base, spacious though it may be.
“This gives Apple a service that’s available for Android devices, which they haven’t chosen to support up until now,” said Bob O’Donnell, founder and chief analyst at Technalysis Research. “And it lets them do it without the Apple brand.”
“This is clearly a way for Apple to take revenue from other OSes, and potentially market iOS devices to them,” added James Cridland, managing director of MediaUK.com. “It’ll be interesting to see how they market Beats on these operating systems.”
Money well spent?
At the same time, these consultants have their doubts about the overall effectiveness of Apple’s foray into streaming music via Beats Music, which just launched in January.
“Beats only has around 250,000 paying customers, and Beats appears to pay the standard industry rate for music royalties to run the service,” Cridland said. “I struggle to understand whether there’s anything special here in terms of their streaming service for Apple to acquire.”
“There’s also a clear brand conflict—for iPhone users, at least,” he added. “iTunes is Apple’s music service: iTunes Radio is Apple’s algorithmic jukebox. Apple is unlikely to want to confuse consumers by introducing the Beats brand as a streaming service, possibly alongside its own. Perhaps this heralds a sub-brand marketed separately for younger people: but would this also include an iPhone?”
Bob O’Donnell is also skeptical about the level of fear that Pandora, Spotify, and other streaming services should actually be feeling about Apple’s purchase of Beats.
“I’m not convinced it’s a great business move because I think [Apple] could have created a curated music subscription service on their own for a lot less than $3 billion,” O’Donnell said.
For that reason, O’Donnell wonders if Apple bought Beats because “they felt they needed an injection of ‘coolness.’ Of course, they would never admit to that, but I have a nagging concern that they kind of blinked on this one.”
Time will tell if the addition of Beats is enough to allow Apple to muscle aside Pandora and Spotify. At the very least, the $3 billion deal is a great attention-getter, and something that may motivated music fans to take a second look at both sites’ services.