Please ensure Javascript is enabled for purposes of website accessibility

Apple Just Gave Beats Music a Big Advantage Over Spotify

By Sam Mattera – Oct 6, 2014 at 6:18PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

With Apple's help, Beats Music could eventually overtake market-leading Spotify.

Although technically a Spotify competitor, Beats Music was far from threatening when it debuted earlier this year. With a unique element of personal curation, it wasn't just a me-too product, but its $10 per month on-demand music model is almost indistinguishable from Spotify's. Technical glitches plagued its launch, and in May, a leaked document suggested that Beats Music had only 111,000 paying subscribers -- a drop in the bucket compared to Spotify's 10 million.

But in spite of its massive lead, Beats Music could eventually catch up to its much more entrenched competitor. Apple's (AAPL -2.63%) acquisition is already benefiting Beats Music, and further advantages seem likely to accrue in the months ahead.

Beats Music comes to Apple TV
Late last month, Apple updated Apple TV with a new channel: Beats Music. Though known mostly for its streaming video and cord-cutting prowess, since the beginning, music has been an integral part of Apple TV, and for years, Apple TV has served as an ideal way to play iTunes music over a home theater setup.

But digital downloads are waning in popularity and subscription-based services are on the rise. In July, Nielsen reported that, for the first six months of 2014, digital track sales declined 13% on an annual basis. Meanwhile, on-demand streaming rose 42%.

The addition of Beats Music to Apple TV makes it the only on-demand streaming service with a native Apple TV app. Admittedly, Spotify music can be sent to an Apple TV, but only with a paired Mac or iOS device using AirPlay. That's a solution, but it's not ideal -- the use of AirPlay limits what that paired device can do. For Apple TV users -- of which there are at least 20 million -- the integration with Beats Music could entice a few Spotify subscribers to jump ship.

Closing Beats Music down?
But more significant is what the addition suggests -- Apple is using its ownership of the platform to give Beats Music a leg up over Spotify. That seems likely to intensify, particularly as Apple works to further integrate Beats Music within its iOS platform.

Late last month, a report from TechCrunch alleged that Apple planned to discontinue the Beats Music service at some point in the near future. Apple later denied the report, but Re/code elaborated: Though Apple may discontinue the Beats Music brand, it would remain active in streaming music, perhaps merging Beats Music with its own iTunes application.

Spotify's rivals have a big advantage
If so, that would be similar to what Google has done with Google Music All Access: For $10 per month, owners of devices powered by Android can give the core Google Music app Spotify-like functionality.

Not all of Spotify's users rely on iOS or Android devices, but its most lucrative do: Although Spotify is ad-supported on traditional PCs, its mobile app requires a subscription for unrestricted, on-demand listening. Of its 40 million active listeners, 10 million pay for the service -- most of which likely do so for the added mobile functionality.

This puts Spotify in an unfortunate position, similar to the one Pandora has faced in recent months: Going forward, Spotify will have to compete with larger, deeper-pocketed rivals that happen to own the very platforms it depends upon for its customers.

Spotify isn't a publicly traded company, but it's widely expected to IPO at some point in the near future. Given Apple's recent moves, investors eyeing a stake should be cautious: Though it's the on-demand, streaming music leader for the time being, maintaining that position could be remarkably difficult as more intense competition from Apple seems imminent.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), Google (C shares), and Pandora Media. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Pandora Media. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Stock Quote
Apple
AAPL
$144.22 (-2.63%) $-3.89
Alphabet (A shares) Stock Quote
Alphabet (A shares)
GOOGL
$96.05 (-1.45%) $-1.41
Pandora Media, Inc. Stock Quote
Pandora Media, Inc.
P
Nielsen Holdings Stock Quote
Nielsen Holdings
NLSN
Alphabet (C shares) Stock Quote
Alphabet (C shares)
GOOG
$96.25 (-1.38%) $-1.35

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.