Guest post by Dan Cryan and Jack Kent, IHS Technology
Apple has made its long expected entry into the on-demand subscription music market with the launch of Apple Music: a premium only service with plans starting at $9.99/month for personal plans and $14.99/month for the family plan in the US.
Apple Music will be available as a free trial for the first three months. Unlike its App Store policy, Apple Music launches with differential pricing based on geography and is available for much lower prices in less developed markets. The new service is available via an iOS 8.4 software update on an iOS device and available in 110 countries (select features in each country) at launch. It is also available via the iTunes client for PC and Mac at launch. Apple also plans to launch an Android app via Google Play later in 2015.
Apple Music offers a similar catalogue in size to Spotify, Tidal, Google Play Music, and Rdio with 30 million songs. It aims for differentiation with some exclusive content, celebrity features and a new Beats 24 radio station.
Wide availability and preinstalls will help Apple Music to appeal to new customers
With availability in 110 countries at launch and coming preinstalled on devices running iOS 8.4, Apple Music has a strong base from which to start. Recent analysis by IHS indicates that if 10% of iPhone users were to subscribe to Apple Music, it would rival Spotify to be the world’s largest on-demand subscription service at the end of 2015. In addition, if just 1% of the global iPhone installed base were to subscribe to Apple Music, they would generate the equivalent of 10% of the global digital music retail sales in 2016.
There is room to grow the on-demand music market in many regions
The world’s largest music markets are the least developed subscription markets. This suggests that Apple Music has a lot of room to grow in regions where consumers are already happy to spend money on music. IHS research shows that this includes:
- The USA: which accounted for over 36% of music consumer and advertising revenue.
- Japan: which made up 17% of global music revenue.
- Germany: which made up 9% of global music revenue.
- The UK: which made up 8.5% of global music revenue.
As of H1 2015 each of these markets saw less than 5% penetration of music subscriptions by population. The UK was the highest coming in at 4%, followed by the US at 3% and Japan at 1.4%.
By contrast Sweden and South Korea are the most developed on-demand music subscription markets, with 23% and 16% of their respective population subscribing to an on-demand music service. However the high penetration did not translate to revenues with on-demand making up just 4% of music revenue in 2014.
Apple’s differential pricing will help increase uptake in large markets such as India, Brazil and Indonesia.
As usual, Apple is not first to market but will hope to take a lead
Apple is rarely first to market with new products or services and its entry into on-demand music subscription services is behind many competitors across the media and technology industry. Standalone music providers Spotify and Deezer launched in 2008 and 2010 respectively; Microsoft launched its Xbox Music service in 2012, replacing its previous Zune Music; Google Play Music All Access, Google’s first on-demand service, launched in 2013; Samsung launched its on-demand Music Hub in 2012, though this closed in 2014 as the device maker found it difficult to differentiate.
In contrast to other aspects of its own device, such as OS and service ecosystem – the music market presents Apple with fewer opportunities to differentiate. Catalogue size is unlikely to make much user impact, and artist exclusives will have limited impact and can be expensive. Pricing is one way to differentiate, but agreements with record labels often dictate how much room there is for a music service provider to manoeuvre. Apple probably has greater flexibility on price than many of its competitors, given the company’s historical practice of running iTunes music and video stores at around break even to support its high margin device sales.
Apple’s main competitor in the on-demand music space will be Spotify, which accounted for 44% of on-demand music subscriptions in the first half of 2015. Spotify’s paying user-base now stands at more than 20m subscribers out of a total audience of 75m users. Unlike Apple, Spotify is a strong proponent of using a free ad-supported tier to attract users and drive them on to premium subscriptions.
Apple hopes user experience will be a key differentiator
Notable features include its 24/7 Beats 1 radio station and Apple Music’s Connect tab, which is a social feed where users can follow artists, receive updates, and view behind-the-scenes videos. iOS’s voice assistant Siri is also integrated into Apple Music, allowing users to request music recommendations and add or change music. Apple’s celebrity-run Beats 1 radio station Beats 1 is another way in which it is trying to differentiate but again its impact will be limited.
Instead the keys to Apple’s chances of success will come from its pre-installation on all modern iOS devices, integration with the default iOS Music app (something other services are not able to do) and Apple’s existing billing relationship with its users, which can be used once the three month trial has finished.
Unlike other Apple services, music has to go across devices
Many Apple services have been developed specifically for its own devices (such as its App Store, iMessage and FaceTime communications apps, and productivity tools) but music has always been a different case with the iTunes client being available for PC as well as Mac. The ability to access content across ecosystems is a crucial part of the appeal of on-demand music apps. This ubiquity means that to make its service a success Apple has to offer its Music app across Android and PC devices – particularly as it offers family plans which make it more likely that users will have a range of devices running different operating systems.