Apple Inc.'s (NASDAQ:AAPL) new streaming service, Apple Music, has been greeted with mixed reviews since its unveiling last Monday at the company's Worldwide Developers Conference.
The service, which combines iTunes with a revamped streaming radio known as Beats 1 and an on-demand subscription streaming offering for $9.99 per month, was met with confusion from some analysts. Many called the presentation sloppy, particularly by Apple standards, and questioned the product itself. Others hailed it is a success, claiming it could become the leading streaming service within a year; it is plainly targeting streaming leaders Pandora Media (NYSE:P) and Spotify, with a platform (streaming radio and on-demand listening) that mimics both.
Pandora's stock fell 8% following the announcement, indicating investors certainly perceived Apple Music as a credible threat, until Pandora's CFO stepped in to reassure investors. In an unabashed and unvarnished response to Apple Music, Michael Herring presented what might be the best assessment of the streaming industry today, as well as his take on what Apple's reentry -- it already launched iTunes Radio two years ago -- means for its peers. Here are a few of his most important points.
1. Most listeners don't want to pay for music
Pandora is the leading streaming platform in the country, with 79.2 million listeners. Of those, about 4 million subscribe to its ad-free service, Pandora One, which charges just $4.99 a month to new subscribers. The vast majority of its listeners are content to enjoy the radio service with ads, and Herring speculated that across the industry 80% of listeners were unwilling to pay.
For example, Spotify, which also employs a free version and a premium model, claims 75 million active listeners, 20 million of whom pay for the service. Spotify's $9.99 per month subscription service allows users to make their own playlists, an ability Pandora does not have, which perhaps makes it more appealing for listeners, but still just more than a quarter of its audience pays.
Based on those numbers, it's hard to dispute that in the era of digital music, most listeners simply refuse to pay anything.
2. "Consumers are curious," but...
Herring was not bombastic in his defense of Pandora, allowing that "consumers are curious, and we expect as new services are offered, people will reach out and try different services." In any industry, a certain percentage of users will experiment with different products and sample what's new. Some are early adopters, and are more interested in new services than others, but ultimate quality determines success.
Pandora, widely considered the streaming industry's pioneer, has survived challenges from a range of services including iHeart Radio, iTunes Radio, Spotify, Rdio, Rhapsody, Tidal, Google, and Amazon.com, continuing to grow throughout. Regarding Apple Music's threat, Herring concluded that Pandora "has a lot of loyalty and has really been very successful with a lot of competition. We don't expect that to change."
Some Pandora listeners will give Apple Music a shot, but many of them will likely come back.
3. Apple doesn't just automatically charge your credit card
Much has been made in the streaming wars about Apple's 800 million iTunes accounts and the credit card numbers that come with them, but Herring said that is only an advantage if consumers like the product: "It's a great advantage for Apple. But they don't get to just charge those credit cards. They need to prove there is a value proposition there. The key issue is musical taste would need to change more than just access to payments."
Similarly, analysts seem to be exaggerating the advantage that Apple has by making Apple Music automatically present in the iOS 9 refresh. Pandora and Spotify are just as accessible -- easily downloadable in the App Store, where over 80% of listeners give each five stars, and also available on more platforms.
With Apple arriving late to the streaming game and having already failed once, it will take more than its deep pockets and its family of hardware to reclaim leadership of the digital music industry. It will have to offer a compelling product; with the overwhelming popularity of Pandora and Spotify, that won't be so easy for the iPhone maker.
Jeremy Bowman owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, Google (A shares), Google (C shares), and Pandora Media. The Motley Fool owns shares of Amazon.com, Apple, Google (A shares), Google (C shares), 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.