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Will 2016 Be the Year Apple Music Takes Off?

By Andrew Tonner - Jan 11, 2016 at 8:18AM

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As Pandora, Spotify, and Alphabet increase the competitive pressure in the booming market for on-demand music, what could 2016 hold for Apple Music?

Source: Apple.

Thanks to a number of decisive moves throughout 2015, the contest for control of the streaming music industry has narrowed to four names: Apple (AAPL -0.08%), Pandora (P), privately held Spotify, and Alphabet (GOOG 0.38%) (GOOGL 0.36%).

Even as their business models continue to evolve, the year ahead should help define the competitive landscape. But as one industry analyst recently argued, the coming year could see Apple Music make meaningful progress as it vies to overtake Spotify, Pandora, and Alphabet.

Apple Music ascending?
Boutique media research firm Midia recently laid out a case that Apple Music will parlay its second-half momentum into continued subscriber growth throughout 2016. Midia's well-respected managing director, Mark Mulligan, believes Apple Music will end 2015 with 8 million subscribers, up roughly 23% from the 6.5 million subscribers it reported during its October earnings release.

Perhaps more impressive, Mulligan expects Apple Music's momentum to accelerate throughout 2016. All told, he believes Apple Music will end 2016 with upward of 20 million paid subscribers. By his reckoning, the key to Apple Music's hitting a paying-subscriber figure that I might describe as lofty will be, according to Mulligan, "whether Apple can do a better job of pushing users from iTunes Radio to Apple Music."  

That's an interesting take, especially as Apple's iTunes Music has been forgotten in the broader Apple Music narrative. However, reaching its 20 million-paid-subs figure will require a lot of things to fall in Apple Music's favor in the year to come.

Color me skeptical
My question is, what will change to allow Apple Music to grow its subscriber base from Mulligan's estimated 8 million year-end subscribers to 20 million a year from now?

  • Will new iPhone sales correlate with more Apple Music subscribers? That hasn't happened so far.
  • Will Apple use its marketing muscle to create another iconic campaign to turn users on to the service? Its massive initial market push doesn't indicate so.
  • Will Apple change the terms to follow Spotify's free-to-premium model? It isn't clear whether its agreement with the major music labels will allow it to do so.
  • Is Apple's iTunes Radio large enough to fuel this kind of growth? Most estimates don't indicate as much. 

Some evidence suggests that the market for on-demand music today might be far smaller than investors and analysts realize. Beyond that, the competitive landscape is virtually guaranteed to become more raucous among the big four of digital music. Pandora's recent purchase of on-demand assets from Rdio foreshadows its coming entry into the space, which should make it more difficult for other on-demand services to poach from Pandora's online radio users. With ample private funding, Spotify will do virtually anything to further its lead in on-demand as well. And lastly, Alphabet's recent, and somewhat confusing, efforts to tap into YouTube's massive listenership also potentially cut off another source of new users for Apple.

Apple's cash stockpile, deep expertise in digital music, and massive mobile installed base all make it a formidable player in the online music space. However, I simply don't see Apple's numerous advantages translating into 20 million subscribers next year, as Spotify, Pandora, and Alphabet also strengthen their respective offerings in 2016. Only time will tell.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Andrew Tonner owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), 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.

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