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Apple Is Getting Into Music Publishing

By Evan Niu, CFA - May 30, 2018 at 8:35PM

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Expanding into publishing has all sorts of possibilities for the future of Apple Music.

One of the most promising aspects of Spotify Technology's (SPOT -4.35%) future is the notion of it building a music publishing platform, one that directly connects artists to listeners. That could help reduce the Swedish company's royalty burden, while cementing its unique role in shaping the future of music. To be clear, Spotify is still at the beginning stages of these efforts, recently hiring Francios Pachet to lead its Spotify Creator Technology Research Lab, which will help develop creative tools for artists.

It seems that Apple (AAPL 0.14%) is recognizing the value in building a music publishing platform for Apple Music.

Apple Music displayed on three iPhones

Image source: Apple.

The potential of publishing

Music Business Worldwide reports that Apple has created a new internal division for music publishing, and has promoted Elena Segal to lead the new division. With Jimmy Iovine on his way out, Oliver Schusser was named Apple Music chief in April. Establishing the new publishing team is one of Schusser's first big strategies to be implemented, one that has significant potential for the future of Apple Music.

Schusser doesn't believe that the publishing aspect of the music business has received enough attention or evolved enough toward direct relationships, despite how critical publishing is to content discovery, according to the report. That's what the new Apple Music chief is trying to change. "Oliver wants to underline the importance of publishing and songwriters to Apple. That's what this move is all about," said MBW's anonymous source.

Rolling Stone points out that expanding into publishing could give Apple greater negotiating leverage when it comes to inking licensing deals, and Apple could even go as far as to sign artists directly. It could also give Apple greater control over the underlying content -- and we all know what a control freak Apple can be -- while also potentially improving payouts to artists. Apple Music already boasts the highest payouts to artists, thanks in part to its paid-only model that does not rely on advertising whatsoever for monetization.

A platform war is coming

Apple CEO Tim Cook said earlier this month that Apple Music had hit 50 million users, but that figure includes both paid subscribers and trial users. (Apple Music hit 40 million paid subscribers in April.) Meanwhile, Spotify ended the first quarter with 170 million monthly active users (MAUs), of which 75 million were premium subscribers.

It's becoming increasingly clear that this is going to evolve into a platform competition of sorts, which is why both companies are aggressively building out their streaming platforms and expanding deeper into other aspects of the music business.

Evan Niu, CFA owns shares of Apple and Spotify Technology. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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