On the heels of Apple's (NASDAQ:AAPL) brand-new music streaming service it's worth considering whether or not the company can convince consumers that paid music subscriptions are better than free, ad-based ones. But an even bigger question is whether or not Apple Music can succeed in markets that are less than enthusiastic about paying for music -- like China.
Apple's had great success in the country, but transferring those warm feelings for iPhones to Apple Music may not be so easy.
Why Apple Music in China is a hard sell
While Chinese users are accustomed to consuming a lot of entertainment, The Wall Street Journal recently noted that most of them aren't used to paying for it.
One of the most popular streaming music services in the country, Tencent's QQ Music, has only 3 million premium subscribers and uses pay less than $2 per month for it. Contrast that to Apple Music, which costs $9.99 per month.
According to the International Federation of the Phonographic Industry, or IFPI, U.S. consumers contributed to $3.5 billion in music streaming revenue in 2014, while music streaming services in China brought in just $91.4 million.
It's not that hard to guess why Chinese consumers don't see the need for music subscriptions. Online users in the country have a plethora of sources to choose from for pirated music, and until recently the government has done very little to seriously crack down on it.
According to the IFPI, China has untapped music revenue potential, "An undeveloped culture of paying for music and a history of piracy makes progress slow." Further in the IFPI report, music industry consultant Ed Peto noted that the fact there are paid music models in China is a good thing, but also said, "The difficulty at the moment is that consumers can still get everything they want for free."
And free is just a little bit cheaper than Apple wants to charge.
A better approach to China
In addition to Tencent, other Chinese companies like Baidu and CMC have their own music streaming offerings in the country. Right now these companies strongly compete with each other for music users and that's likely to hinder Apple Music's progress in the country as well. When Apple Music launches in China (likely on June 30 along with about 100 other countries), it'll be coming in as the underdog, and still charging significantly more that its competitors.
While it's promising that there are already some paid music streaming services in China, I think Apple will eventually have to change strategies a bit with Apple Music in China. It's hard to say exactly what that will look like right now as the service just debuted, but a good first step would be in reducing the cost for Chinese consumers. Apple Music in and of itself isn't a revolutionary offering, even in the U.S., and I think it could have an especially ho-hum response in China if Apple can't offer up additional perks or drastically cut the price.
The upsides for Apple is that the company has a history of convincing users to pay for music and the company is already very popular in the country. Apple just needs to remember that while U.S. consumers have learned (somewhat) how to open their wallets to music, Chinese consumers will need much more coaxing.
Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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.