By Ethan Smith And Daisuke Wakabayashi
Until now, there have been two players in subscription music:
Spotify and everybody else.
That is expected to change on Tuesday, with the launch of Apple
Music, offering unlimited, on-demand access to tens of millions of
songs for $10 a month. It's the same fundamental proposition as
Spotify AB, Google Inc. and many smaller competitors, all of which
offer more or less the same music library for the same price.
Apple Inc. will rely on its brand, its installed base of users
and its marketing prowess to differentiate itself and attract the
millions of users it needs to create a successful competitor in a
market that so far has had a small, if enthusiastic, user base.
Apple said its new streaming music service will be available
from Tuesday morning in the U.S. as part of an update for its iOS
software. The company is betting that it can convert a meaningful
percentage of its 800 million iTunes accounts--most with credit
cards attached--to the service.
The subscription service is one piece of Apple's new music
offering, which also includes a 24-hour-a-day Internet-radio
station called Beats 1 that will feature well-known radio DJs and
celebrities. Another component is called Connect, which aims to
provide artists with a way to distribute certain music free of
charge, similar to SoundCloud.
The subscription service is the heart of its new initiative, at
a time when the music-download business that Apple helped establish
is slowing down.
It faces a formidable competitor in Spotify, which had 4.7
million paying subscribers in the U.S. as of last December,
according to data shared with music publishers. Spotify also has
14.7 million U.S. users for its free ad-supported service. Apple
plans to limit its free offering to a three-month trial period, so
the battle will be for subscribers.
Google Play Music was a distant No. 2 in the U.S. among paid
streaming services, with about 815,000 subscribers. Globally,
Paris-based Deezer is the second-largest streaming service, after
Spotify, but Deezer lacks a meaningful presence in the U.S., where
music services are required to share detailed usage data with music
publishers.
Rhapsody, the decade-old granddaddy of subscription services,
had 705,000 subscribers in the U.S. for the version of its service
comparable to Spotify Premium or Apple Music.
Beats Music, which Apple acquired last spring, ended the year
with 303,000 subscribers. Early descriptions of Apple Music
indicate it borrows heavily from some aspects of Beats,
particularly for customized music suggestions. Apple is expected to
migrate Beats users to Apple Music in the near future and
discontinue the older service, according to people familiar with
the matter.
Only about 25% of the 110 million iTunes Music customers who
bought music last year spent more than $110 on songs and albums,
according to people in the music industry. To attract enough users,
Apple may have to position its new subscription service as more
than just a replacement for downloads.
For instance, custom playlists of new music based on a user's
existing iTunes catalog, or on an activity or mood, could be
selling points. People in the music industry expect Apple to pitch
the subscription service as a cost-effective alternative to
downloading, by pointing out that a month of unlimited access costs
roughly as much as buying a single album.
Apple may be angling for a social component to its new service.
Terms of its licensing agreements with music companies call for
allowing Apple Music subscribers to share links to songs with
nonsubscribers, who will then be prompted to start the free trial
of the service, according to people who have reviewed the
terms.
One small point likely to help Apple Music stand out: After
resolving a brief dust-up last week with Taylor Swift, it will
become the first subscription service to carry the pop star's
"1989," as well as "The Chronic," the seminal 1992 album by Dr.
Dre, who is now a senior Apple Music executive.
Write to Ethan Smith at ethan.smith@wsj.com and Daisuke
Wakabayashi at Daisuke.Wakabayashi@wsj.com
Access Investor Kit for Apple, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US0378331005
Subscribe to WSJ: http://online.wsj.com?mod=djnwires