Apple (NASDAQ:AAPL) services chief Eddy Cue recently confirmed that Apple Music has reached 60 million paid subscribers, roughly five months after hitting the previous milestone of 50 million paid subscribers. That means Apple remains the No. 2 player in the paid music-streaming market behind Spotify. It's abundantly clear that streaming is the future of the music industry, with nearly half of the industry's revenue coming from streaming services last year.
In this segment from Industry Focus: Tech, host Dylan Lewis and Fool.com contributor Evan Niu discuss Apple Music's latest milestone.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
This video was recorded on June 28, 2019.
Dylan Lewis: Why don't we kick things off with a discussion of Apple Music? We got a little update on some of their subscriber numbers this week.
Evan Niu: That's right. This week, services chief Eddie Cue disclosed that Apple Music hit 60 million paid subscribers. Apple doesn't disclose their Music subscription numbers on a regular basis. They don't include it on quarterly earnings necessarily. They just announce when they hit these certain milestones. The last update was 50 million back at the end of January, when they announced earnings. We're talking about 10 million subscribers in about five months. Apple Music is getting a lot of big changes to this year with iOS 13 and Mac OS Catalina. We're talking about some interface improvements. They're adding some stuff like time-sync lyrics. A big one is also, they're unbundling iTunes finally on the Mac and splitting it into three different apps to better focus the experience on these specific content categories. It's going to become Apple Music, and then Podcasts, and then Apple TV. iTunes has been around for like 20 years. It's been getting bloated and bloated over that time. Software chief Craig Federighi actually even joked about this earlier this month at the developer conference, saying they're going to add a calendar to iTunes, add a dock to iTunes. He was just joking around, but the point is, it's about time to split these things up. Combining Apple Music with iTunes has always been a confusing mess. Your subscription catalog is right next to all the stuff you might have bought for years back. It's never made a lot of sense, so it's actually a good thing that they're splitting it up. That'll probably help them grow more in the future going forward, too.
Lewis: I remember when they first launched Apple Music. They were running into issues where there was double counting in people's libraries, or things that they had bought had disappeared because they were now on the subscription model where they were streaming stuff. Anyone that had a very delicately curated iTunes account might not have been so happy being an early adopter of Apple Music. They worked a lot of those kinks out. But I think this is something that people should generally be happy about from a user experience perspective.
The big ticket thing here, though, is that subscriber number. I think it's pretty clear at this point, Apple Music is far and away one of the big wins for them on the service side.
Niu: Right. He also confirmed that Apple Music is their largest first-party service, which isn't surprising. They've been launching all these different services over the years. Most recently, News+, and they're about to launch Apple Arcade, which is a gaming subscription business, and then TV+ later this year for some video content. They've also been building up this iCloud storage business, too, which they've said has grown quite a bit. They've never given hard numbers around it. He did confirm that Apple Music is the biggest. Just to put some of these numbers into perspective, at 60 million, Apple is the No. 2 in terms of paid music streaming. Spotify is No. 1, and Tencent Music is No. 3. Spotify has like 100 million. Tencent Music has about 28 million. Those top three companies represent roughly 70% of all paid music streaming subscriptions in the world. All three players by far and away carry most of the weight here.
Lewis: Evan, you don't tweet often, but you tweeted earlier, and you had this awesome chart that you put together that breaks down the recording industry, basically, by revenue. We're getting very close to a milestone of, these streaming businesses overtaking the majority of the revenue for the music industry, which is pretty incredible. It's been pretty quick.
Niu: Right. Earlier this year, a trade group, International Federation of the Phonographic Industry, IFPI, put out some figures regarding the global music industry. What they found was that at the end of 2018, there was a little over 250 million global paid subscriptions. Separately, Goldman Sachs recently estimated that should grow to 1.15 billion by 2030. That's massive upside in terms of where this market is going. But to get to the number that you're referring to, their figures showed that streaming was 47% of industry revenue last year, compared to 2% in 2008. That's a massive change over the course of 10 years. I think it's pretty clear that paid music streaming is the future of this industry and where it's going.
Lewis: This industry has seen a revival because of streaming. We were seeing declining revenue in the industry for an extended period of time as people weren't buying physical versions of any content and they weren't necessarily even paying for content via iTunes because it was so easy to get music illegally. I think streaming has helped curb that because the user experience is good.
Niu: Right. I think people are starting to appreciate the value proposition of, yeah, paying the subscription fee, but now you get access to tens of millions of songs, vs. just going out and buying a couple of albums at a time, even though the average consumer now spends about twice as much on music on an annual basis because of the shift to the streaming model. But I think people are finding that it's worth it. $60 more over the course of a year isn't make or break for most people. But now you can listen to basically anything you want, anytime. I think people are appreciating that model. That's where we're going.
Lewis: Yeah. You think about the value prop there. For what would probably be the cost of six to eight physical CDs, you can access any piece of music, anywhere, basically, for an entire year. That's pretty awesome!
Niu: Plus, it's on all your devices. It's not like you have to have your CD with you, carry it around, plug it in your car dashboard or something. You can access the services from anywhere, anything. Smart speakers, phones, tablets, computers, cars. It's everywhere! I think that's also really reinforced the value proposition.
Lewis: Plus, you have less things collecting dust in your house. All those old CD towers, what are you going to do with them? Not going to happen with your streaming music, Evan.
Niu: Turn them into coasters.
Lewis: [laughs] I'm sure there's some hipster coffee shop where that is happening right now, Evan.