Steve Jobs was perhaps the loudest critic of streaming music in the late 2000s. While companies like Pandora and Rhapsody gradually gained traction, the late Apple co-founder and CEO repeatedly denounced these services and resisted invitations to create a similar subscription option for music.
"Never say never, but customers don't seem interested in it. The subscription model has failed so far," Jobs said in an interview with Reuters in 2007. The following year at Macworld, he reiterated the point: "We've never offered a rental model in music because we don't think people don't want to rent music."
Five years later, it looks like Apple has stopped saying "never." The New York Times and CNET report that Apple is in final negotiations with major record labels to launch an Internet radio service similar to Pandora — which many in the media have dubbed "iRadio" — at its Worldwide Developers Conference later this month.
By now, it's almost taken for granted that Apple is getting into the streaming music business. What's less certain is their reasons for doing so. Why is Apple — a company that generated more than $150 billion in revenue last year — investing in streaming music, an industry in which even the biggest players are still losing money?
The primary motivation, according to analysts, is that Apple is playing defense. Not only are services like Pandora and Spotify growing their user bases, but bigger companies are also entering the space. Google recently unveiled a music streaming service similar to Spotify, and Amazon is said to be in talks to launch a music streaming service as well.
"Everyone, even Microsoft, has a streaming music service. At some point, one of these companies is going to nail it," James McQuivey, vice president and principal analyst at Forrester, told Mashable. "When that happens, Apple will kick itself for not getting ahead of that."
For years, McQuivey says, Apple's "primary objective" has been to focus on products and features that directly contribute to device sales. Music streaming, he argues, only increases sales "marginally," if at all, which may be why it wasn't a top priority early on. But as other companies boost their own media ecosystems, Apple faces increasing pressure to follow suit to lock in existing customers.
"[Apple] is more interested in what they can do to maintain their relationships with people who have bought their devices so that when it comes time to upgrade, they will stay with their devices," McQuivey says.
Changing Music Listening Habits
When Apple introduced iTunes a little more than a decade ago, it helped revolutionize the music industry by providing a streamlined, legal alternative to p2p sites for purchasing songs online. This time around, it appears that Apple is less interested in revolutionizing music listening than responding to changes already afoot in the industry.
"I think this is a very different conversation now than it was 10-12 years ago [when iTunes launched]," said Russ Crupnick, SVP of industry analysis at The NPD Group. "I don't think it's about revolutionizing anything."
While iTunes still accounts for the vast majority of paid downloads, with 63% of the market in the fourth quarter, according to NPD, the overall makeup of music listening is changing fast. NPD found that nearly a quarter of 13-35 year olds listened to music through Internet radio services in the fourth quarter, up from 17% the previous year. If that's not enough, many of these services have already proven incredibly popular among Apple users: Pandora, for example, is the second most popular free iPhone app of all time.
Apple's formula is often not to be first to a product category, but rather to put out a product that makes that category go mainstream. Most streaming services like Spotify and Rdio have just a small fraction of U.S. Internet users. Pandora has by far the widest largest user base of the bunch, with 200 million registered users worldwide.
As Crupnick notes, "If I'm Apple, I'm thinking, 'We have our devices out there. Why shouldn't this be an Apple application, and why shouldn't we own that space?"
Can Apple's Streaming Music Business Succeed Where Others Have Failed?
For all their increased popularity, streaming music services are still money-losing businesses.
Pandora, which was founded in 2000, has yet to have a profitable year. Spotify reportedly posted a net loss of $57 million in 2011. Much of this comes down to unfavorable licensing agreements. If recent reports are accurate, Apple will be paying rates comparable to Pandora, but analysts speculate Apple could save money in operational costs by virtue of being a larger organization. But that might not be Apple's primary concern.
"I wouldn't expect that Apple would necessarily take a loss, but you don't have to make a whole lot of money in music for it to be a good deal for Apple and its consumers," Crupnick says.
NPD found in a separate report that "many free streamers attributed buying more downloads to their discovery on a radio or via an on-demand service."
If Apple can use music streaming as a further gateway to more iTunes purchases of songs and other products, it will pay off in the long run.
Would you use an Apple music streaming service instead of other music apps, if it were to launch? Tell us in the comments below.
This Post is Originally published at Mashable
"Never say never, but customers don't seem interested in it. The subscription model has failed so far," Jobs said in an interview with Reuters in 2007. The following year at Macworld, he reiterated the point: "We've never offered a rental model in music because we don't think people don't want to rent music."
Five years later, it looks like Apple has stopped saying "never." The New York Times and CNET report that Apple is in final negotiations with major record labels to launch an Internet radio service similar to Pandora — which many in the media have dubbed "iRadio" — at its Worldwide Developers Conference later this month.
By now, it's almost taken for granted that Apple is getting into the streaming music business. What's less certain is their reasons for doing so. Why is Apple — a company that generated more than $150 billion in revenue last year — investing in streaming music, an industry in which even the biggest players are still losing money?
The primary motivation, according to analysts, is that Apple is playing defense. Not only are services like Pandora and Spotify growing their user bases, but bigger companies are also entering the space. Google recently unveiled a music streaming service similar to Spotify, and Amazon is said to be in talks to launch a music streaming service as well.
"Everyone, even Microsoft, has a streaming music service. At some point, one of these companies is going to nail it," James McQuivey, vice president and principal analyst at Forrester, told Mashable. "When that happens, Apple will kick itself for not getting ahead of that."
For years, McQuivey says, Apple's "primary objective" has been to focus on products and features that directly contribute to device sales. Music streaming, he argues, only increases sales "marginally," if at all, which may be why it wasn't a top priority early on. But as other companies boost their own media ecosystems, Apple faces increasing pressure to follow suit to lock in existing customers.
"[Apple] is more interested in what they can do to maintain their relationships with people who have bought their devices so that when it comes time to upgrade, they will stay with their devices," McQuivey says.
Changing Music Listening Habits
When Apple introduced iTunes a little more than a decade ago, it helped revolutionize the music industry by providing a streamlined, legal alternative to p2p sites for purchasing songs online. This time around, it appears that Apple is less interested in revolutionizing music listening than responding to changes already afoot in the industry.
"I think this is a very different conversation now than it was 10-12 years ago [when iTunes launched]," said Russ Crupnick, SVP of industry analysis at The NPD Group. "I don't think it's about revolutionizing anything."
While iTunes still accounts for the vast majority of paid downloads, with 63% of the market in the fourth quarter, according to NPD, the overall makeup of music listening is changing fast. NPD found that nearly a quarter of 13-35 year olds listened to music through Internet radio services in the fourth quarter, up from 17% the previous year. If that's not enough, many of these services have already proven incredibly popular among Apple users: Pandora, for example, is the second most popular free iPhone app of all time.
Apple's formula is often not to be first to a product category, but rather to put out a product that makes that category go mainstream. Most streaming services like Spotify and Rdio have just a small fraction of U.S. Internet users. Pandora has by far the widest largest user base of the bunch, with 200 million registered users worldwide.
As Crupnick notes, "If I'm Apple, I'm thinking, 'We have our devices out there. Why shouldn't this be an Apple application, and why shouldn't we own that space?"
Can Apple's Streaming Music Business Succeed Where Others Have Failed?
For all their increased popularity, streaming music services are still money-losing businesses.
Pandora, which was founded in 2000, has yet to have a profitable year. Spotify reportedly posted a net loss of $57 million in 2011. Much of this comes down to unfavorable licensing agreements. If recent reports are accurate, Apple will be paying rates comparable to Pandora, but analysts speculate Apple could save money in operational costs by virtue of being a larger organization. But that might not be Apple's primary concern.
"I wouldn't expect that Apple would necessarily take a loss, but you don't have to make a whole lot of money in music for it to be a good deal for Apple and its consumers," Crupnick says.
NPD found in a separate report that "many free streamers attributed buying more downloads to their discovery on a radio or via an on-demand service."
If Apple can use music streaming as a further gateway to more iTunes purchases of songs and other products, it will pay off in the long run.
Would you use an Apple music streaming service instead of other music apps, if it were to launch? Tell us in the comments below.
This Post is Originally published at Mashable
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