Apple (NASDAQ:AAPL) is on the brink of releasing a new paid music streaming service next month -- but not everyone is thrilled. Spotify, with its 60 million worldwide users, has much to lose if Apple's new service becomes a hit.
Either in a pre-emptive move to stave off Apple, or perhaps by chance, Spotify shored up its music position this month by teaming up with Starbucks (NASDAQ:SBUX) to bring its music into thousands of U.S. coffee shops this fall.
Will the new partnership derail Apple's music plans?
Coffee with an extra shot of tunes
At the core of the partnership is having Starbucks employees create music playlists -- using Spotify Premium memberships -- for 7,000 of the company's stores in the U.S. starting this fall, with expansion into the U.K. and Canada shortly thereafter. My Starbucks Rewards, or MSR, members will also have access to specially curated music on Spotify and be able to influence the playlists played in stores.
One key element of the partnership is that MSR members will be able to use "Stars as Currency" for subscribing to a Spotify Premium membership -- similar to how MSR members earn stars for making purchases at Starbucks, which they can then use to buy food or drinks.
Why Spotify wants this
The real benefit for Spotify is that the Starbucks stores will promote the music streaming service's premium memberships and give Spotify a relationship with Starbucks' 10 million MSR members. While it's unclear how many Starbucks users will cash in their stars for a premium music membership, it could certainly lower the paywall barrier for those who frequent Starbucks on a regular basis.
Spotify presently has about 15 million paying members. but the company is eager to increase that number for two reasons. First, it obviously makes more money from subscriptions than it does from its "freemium" ad-based service. Second, the music industry is cooling to freemium models, and some record companies are rumored to be considering not renewing free music streaming deals with Spotify.
Spotify vs. Apple
The Verge recently reported that Apple is trying to convince record labels to allow those "freemium" deals to lapse as the tech giant gears up to launch its own paid music streaming service at the Worldwide Developers Conference next month. Apple's new streaming service is rumored to undercut Spotify's $10 per month subscription plan, and Apple is trying to get the music industry behind it by launching a paid-only service, without a free ad-based listening option (though there would likely be a free trial).
Apple aims to boost its position in the music business as digital sales in its iTunes store decline. For 2014, iTunes digital music sales were down 14% worldwide.
Meanwhile, Spotify just launched a slew of new features on its app that focus on a more curated music experience, including a new running feature that matches music to a user's running pace and a new video content section.
It seems both companies are positioning themselves for an all-out music streaming fight. Despite Spotify's strong position in the space right now, I think Apple's moves could eventually put the tech company back on top in music.
The tides are turning against the freemium music model -- artists and record labels are unhappy with ad-based services and want users to convert to premium services.
A recent Quartz article said Universal Music Group and Sony Music -- which control more than half of the music market -- started to seriously doubt the benefits of the freemium (ad-based) music streaming model when Taylor Swift pulled her music from Spotify. And Sony Music CEO Doug Morris has described the free streaming option as "death" for the music industry.
Spotify's latest app updates and the new Starbucks partnership are clearly smart moves. But I think Spotify's previous focus on the freemium model has rubbed the music industry the wrong way for too long. That has left the industry looking for a savior that can get people to open their wallets for music once again.
Considering Apple's deep experience in persuading users to pay for music (versus pirating it), I think the company is in a good position to do the same thing all over again.
Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Apple and Starbucks. The Motley Fool owns shares of Apple and Starbucks. 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.