Apple (NASDAQ:AAPL) launched another broadside on the music industry this week. At its Worldwide Development Conference this week, the iPhone-maker unveiled its new Apple Music platform, which combines iTunes and iTunes Radio (now known as Beats 1), with an on-demand subscription streaming service similar to Spotify for $10/month.
Following the announcement, investors were quick to respond to the announcement as shares of Pandora Media (NYSE:P), the only pure-play Internet radio company, fell as much as 8% on Tuesday before comments from Pandora's CFO reassured the stock's faithful. Privately held Spotify also found itself directly in Cupertino's crosshairs for the first time as Apple's on-demand service essentially mimics Spotify's greatest benefit.
Spotify currently charges $29.99 for a family plan with up to five listeners, while Apple will charge just $14.99 for a group of six, prompting Spotify rep Jonathan Price to announce that the company's pricing would be "competitive everywhere in the near future."
Apple Music marks the company's most recent attempt to reclaim the territory it conquered when it invented the iPod and convinced record companies to sell individual songs on iTunes for just $0.99. In recent years, streaming platforms such as Pandora and Spotify have taken a bite out of Apple's monopoly on digital music, and the iTunes-maker has responded in the past. First, it launched iTunes Radio in 2013, which many thought would be the end of Spotify and Pandora but proved to be technologically weaker and less appealing than those two services. In 2014, it acquired Beats Electronics for $3 billion, seemingly for the purpose of incorporating its streaming service to Apple Music. (Its Internet radio service will now be known as Beats One)
A big fish in a tiny pond
Despite the waves Apple made in its announcement, the digital music industry is not the kind of ripe financial territory that the company usually targets.
Sales of music streams clocked in at $1.87 billion last year, up 29% from the year before, and profits have been particularly hard to come by. While that sum would represent significant income for a company like Pandora, for Apple, whose revenue is projected to hit $232 billion this year, it's just a drop in the bucket.
In other words, Apple isn't going after music streaming for the profit. Instead, it sees music as a key piece of its ecosystem. After all, Apple's path to glory began with music, with the iPod and iTunes. When the iPhone was first introduced, it was largely marketed as a way to listen to your iTunes on your phone. Even today, Apple includes the music app on one of four fixed apps along the bottom of the phone along with essentials like phone, email, and Internet, indicating it sees music as an equally important feature of the iPhone.
Considering its foundation in music, Apple likely believes the art form to be a part of its DNA. Tim Cook said the company chose Beats above any other potential partner because of its playlists curated by humans instead of algorithms, telling PBS's Charlie Rose the experience he had with the service: "All of a sudden it dawns on me that when I listen to theirs for a while, I feel completely different. And the reason is that they recognized that human curation was important in the subscription service." In a crowded field, however, Beats never really succeeded in making that sale to the greater listening audience as subscriptions topped out near 250,000.
The cool factor
In its infinite quest to keep up its brand appeal, Apple has made a priority out of design and marketing. Its retail stores as well were initially greeted with skepticism, but now bring in record sales per square foot and act as a shrine to all things Apple.
Music is a key part of this equation. As any teenager knows, there's perhaps no better representation of you than what music you listen to, and Apple knows that if it can be the pipeline to your music, it will only strengthen the umbilical connection between the iPhone and its owner.
Still, there's no guarantee that Apple will take over the streaming industry. It flopped before with iTunes Radio, and the field has gotten even more crowded since then with Jay-Z's Tidal perhaps the latest service to enter the competition.
For all the hoopla at Apple's event yesterday, the new music service offers essentially nothing new, merely combining the attributes of streaming radio (Pandora), with on-demand subscription service (Spotify), and a platform for fans to interact with artists (Twitter). Apple's biggest advantage in its music escapade is itself, and its base of iPhone owners and iTunes listeners, but for listeners who are already satisfied with their current service, there seems to be little reason to switch.