Friday, June 12, 2015

(The Big Disrupt) Apple: Prediction - Apple Is Going To Bring The Music Industry To Heel, Again

Everybody knew at some point Apple would get into music streaming business when they bought beats music last year thanks to the decline of the download market and the rise in use of music streaming services such as Spotify and Pandora and with the release of Apple Music at the end of this month, Apple is in a great position to quickly gain a dominant market position.

While there are some unattractive elements of Apple's music streaming offering such as its social media offering for artists to connect with fans (need we run through the gamut of alternatives where artists can and already do this?), Apple can fix these kinks quite quickly thanks to the cash and talent advantage it has over just about every player in the music streaming landscape.

While the current players in the music streaming market have reacted rather positively to Apple getting into music streaming, you can't shake the nagging feeling that music streaming executives across the board are racking their as to how they’re going to tackle a company that has the money, prestige, talent and intent to dominate their music streaming in a relatively short space of time

Rivals like Spotify has a big head start with its 60 million subscribers (15 million of them paying subscribers) and, unlike Apple's new offering, has an ad supported free tier which gives them the chance to convert free users into paying ones. However, given the cash and talent advantage Apple has over all its music streaming competitors it can quickly make up for lost time as while Spotify can raise a lot of money to help generate growth or at least combat its current inability to make money, Apple can eat initial losses accrued from its new music service longer than Spotify can. Apple can do this because they have cash to burn and, crucially, music streaming isn't their core business so the stakes aren't as high for Apple as they are for Spotify.

Apple also, worryingly for competitors, have the ability to be the last mover in the music streaming market much like Amazon was for online book selling and Google was for search engines. This is more than likely to happen as Apple's cash advantage means that they can offer larger royalties for artists and a much larger licensing checks for record labels who own their artist's music.

However, the biggest advantage Apple has out the gate is its ridiculously large customer base which could make Apple the kings of music streaming in one fell swoop as Pandoras' David Holmes pointed out "Apple alone already has 800 million credit cards on file. And if it convinces just 4 percent of these cardholders to pay $9.99 a month, the company would singlehandedly double the total amount of streaming revenue made in the US last year"

All this might not frighten music executives as so far they have negotiated the music streaming market an awful lot better than they did the download market when then Apple CEO Steve Jobs virtually browbeat the entire industry into killing the album and fostering the single driven digital music market that's still prevalent today.

As content owners, Labels this time round are in a better position than they were in back in the early 2000's when the industry as a whole was pretty much clueless as to how to deal with online piracy and, to some degree, still are. The rise of music streaming services has given record labels serious leverage over how music is distributed as streaming services weakened the need for consumers to download music illegally as they, much like iTunes did a decade ago, provided a much better experience than the "illegal" alternative. 

Labels have ruthlessly used this leverage to, for the lack of a better word, extort money out of music streaming services (particularly Spotify) to the point that their music licensing costs outstrip their other costs combined. Their leverage is also why most music streaming services don't make money despite reporting double digital revenue growth group year on year and Spotify, who pay more than most, gets their name dragged through the mud in the press with stories about low artist payouts.

Labels even used their advantage against Apple as they're the reason why Apple Music is priced at $9.99 a month instead of the $5.00 a month Apple planned to enter the market with and made negotiations run as close as they could to Apple's big announcement. However, labels may come to rue how they have used their leverage as content owners as explained earlier, Apple can quickly become their biggest licencee of its content and maybe five years down the road, might be the only game in town or at least the only game worth entertaining.

Tech companies are notorious for aggressively negotiating prices with content owners and creators when they have leverage over how content is distributed as Amazon's infamous clashes with book publishers and Apple's famous negotiations in the early 2000's with music executives have shown and should Apple dominate the music streaming market, expect more of the same. Apple, surely none too pleased that their plans to compete in the music streaming market were leaked twice leading up Tuesday' release, would surely love to get payback after music executives were  damn near dismissive about Apple Music and patting themselves on the back for driving a hard bargain.

However, despite the efforts of labels, the music industry looks like it's going to be one of the few industries in the world to disrupted twice by same company as Apple are determined regain their position as the kings of the digital music market once again and with their vast resources, you can only pity the fool stupid enough to bet against them.

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