In order to get as much musical bang for its $3 billion bucks as possible, Apple (NASDAQ:AAPL) may have devised a plan for the music streaming service it acquired as part of its Beats acquisition. Tim Cook has already named three primary drivers for the big purchase: a growing headphone business, talented execs with deep ties to the music industry, and innovative curation technology within Beats Music.
The Mac maker has already started promoting Beats headphone products in its online and retail stores while actively removing competition from Bose. Now, Apple is reportedly interested in bundling in Beats Music in future versions of iOS to give the service a lift.
The Financial Times says that Beats Music will be bundled in iOS starting early next year, potentially as part of a software update scheduled for release in March. Separately, The Wall Street Journal reported last month that Apple was working to build a rebranded version of Beats Music and subsequently integrate the service into iTunes, which has always been the most obvious possibility.
Beats' strong brand was another asset that Apple acquired, so presumably it may want to keep the brand name that it paid so handsomely for. Maybe an "iTunes Beats" service is in order, as that would be a simple way to combine two powerful brands.
A musical trifecta
According to The Financial Times, Apple's music strategy will include three components going forward: traditional downloads, iTunes Radio, and the new Beats Music service. The latter two seemingly have a lot of overlap in terms of what they can bring to the table, although they have different pricing structures.
iTunes Radio is available as a free, ad-supported service. Alternatively, iTunes Radio is included ad-free at no additional charge for iTunes Match subscribers, which costs just $25 per year. On the other hand, Beats Music currently costs $10 per month or $100 per year, but Apple is also reportedly looking to lower that price point to spur adoption. The company has been negotiating licensing terms with record labels, and supposedly wants to drop the price point to $5 per month, which would undercut Spotify.
While both iTunes Radio and Beats Music offer curated playlists and recommendations based on personal tastes, the big difference is that Beats Music also includes unlimited access to over 20 million songs -- the same access model that Spotify uses.
iTunes Radio is more like Pandora (NYSE:P), while Beats Music is more like Spotify. Apple is trying to take on both of the dominant music streaming services at the same time.
iTunes has an estimated 200 million active customers right now. After iTunes Radio launched last year, Apple quickly garnered 11 million listeners within the first five days. Over the following month, that figure would rise to 20 million listeners, and Apple hasn't given many updates since. Pandora shares initially sank on Apple's initial spike, but fears subsided since its active listener base seems unfazed. At the end of last quarter, Pandora's active listener base was 76.5 million, and the company hopes to reach 100 million within the next three years.
In contrast, estimates peg Beats Music's subscriber base at just 110,000. Bundling iTunes Radio did help create an early spike in usage, but that may not withstand the test of time in terms of sustained usage. Didn't Apple learn any lessons from giving away a free U2 album that no one wanted?
Evan Niu, CFA owns shares of Apple. The Motley Fool recommends Apple and Pandora Media. The Motley Fool owns shares of Apple and Pandora Media. Try any of our Foolish newsletter services free for 30 days. 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.